Following trends in the domestic and global economy, conditions in the Los Angeles office market continued to deteriorate this summer. Los Angeles County’s unemployment rate reached 11.9 percent in July, up from 7.7 percent 1 year earlier, and the Bureau of Labor Statistics estimated that 172,100 non-farm jobs were lost between July 2008 and July 2009. Area companies have conceded to a difficult business environment and lower revenue forecasts by shedding employees in record numbers and, in turn, reducing their need for office space. At mid-year, total vacancy was 14.7 percent, up from 12.5 percent at the end of last year. The market experienced negative net absorption of 3.3 million square feet through the first half of the year, and preliminary third quarter data indicates that vacancy continues to rise, albeit at a slower pace than has been witnessed during the past 18 months. While previous real estate downturns in Los Angeles were triggered by excessive speculative office construction, the current rise in vacancy has stemmed from a collapse in demand. Construction has been relatively limited in the current cycle; however, a handful of large projects have been delivered this year, most notably The Pointe (480,000 square feet) and 2300 …
Market Reports
Caution is the course that many industrial tenants are pursuing in the Twin Cities of Minneapolis and St. Paul, especially when it comes to leasing or acquiring new space. This is partly to do with being prudent and partly to do with firms' continued inability to dislodge money from the frozen capital markets. “More so than I have ever seen in the market, companies are very reluctant to consider relocating,” says Bill Ritter, senior vice president of Welsh Companies. “Any company that has the ability to consolidate or renew is looking at that versus the cost associated with physical relocation.” For those that are in the market for space, Ritter has optimistic news. “I have never seen a better time to be a tenant in over 25 years of experience leasing and selling industrial real estate,” he says. Ritter goes on to say that a unique trend is developing in which landlords are trying to get their tenants to renew 12 to 18 months before the end of their lease terms, and they are willing to rewrite the current rental agreement — with discounted rates — if the tenant agrees. “Sure, the landlord is giving something up, but if that …
The impact of today’s worldwide economic downturn and credit crunch is significant, but it is in no way the worst in history, especially for Houston. Houston was hit harder than other markets in the 1980s; in a way, this guaranteed that the city would be ahead of the rest of the nation in terms of avoiding a recession. Compared to the rest of the country, current demand for retail space in the area continues to be high, and the city has a relatively low vacancy rate of about 10 to 12 percent. Houston’s economy is still largely based on energy, but to a lesser extent than in years past. Houston’s growing population and strong economy continues to fuel a reasonably healthy retail market. A relatively low unemployment rate and a low cost of living are driving forces of the resilient market. In 2008, as most of the country was experiencing downsizing, Houston had a net gain of approximately 57,000 jobs in the region. Residents have continued to shop, but the habit of buying has changed — or it has at least slowed down a bit. Nonetheless, retailers consistently say Houston is one of the strongest performing markets in the country. …
While the recession has impacted NOIs in the Washington area, the local apartment market has weathered the economic downturn better than in most metros. The 60 basis point year-to-date rise in vacancy to 6 percent is the most glaring effect of the recession. Although rents remain resilient, asking rents inched up 0.4 percent in the most recent 3-month period, while effective rents declined for only the second quarter since 2004. Job losses have weighed the most on Class A asking rents, particularly in areas where rent gains were sizable recently, such as Pentagon City/Crystal City, the Connecticut Avenue Corridor and Rockville. The district’s Dupont Circle, Logan Circle and Columbia Heights neighborhoods, however, are notable exceptions to this trend, as these areas remain desirable to renters. Lower-tier asking rents have managed to push higher in many locations, although softer rents and vacancy rents have been recorded in the Anacostia/Northeast D.C. and Stafford County submarkets. Development completions are accelerating this year, and the construction pipeline is expected to remain relatively full through 2010, posing a further threat of concession increases. A metro-leading 9,000 units are under consideration in Virginia, while there are 6,600 units planned in the district and 3,900 units proposed …
It’s been one long, uncomfortable summer for the Orlando hospitality industry. Unfortunately, there seems to be no relief in sight for hoteliers anytime soon. At the beginning of 2009, the Orlando market had 438 hotels totaling approximately 111,700 rooms, a number that is second only to Las Vegas. Orlando will have added another 3,775 hotel rooms by the end of this year; during 2010, the area will introduce another 1,000 rooms. While some existing hotels are being closed permanently and others are just shut temporarily for renovation, it is hard not to believe that the Orlando market will be playing catch-up for many months in an effort to absorb this new supply. The slide started late last year when occupancies stopped advancing after a 5-year climb. For year-end 2008, the Orlando market overall was down 3 percent in occupancy but up 3 percent in average daily rate (ADR), leaving revenue per available room (RevPAR) essentially unchanged during 2007. However, by the end of the first quarter of 2009, both occupancy and RevPAR dropped to their lowest levels since 2002. Occupancy was actually 2.8 percent below 2002 levels, and ADR was off almost 7 percent from the same period, making the …
Few parts of the country have been harder hit than Detroit in the current recession. While it appears at first glance that the industrial sector has had it worse, the office sector has felt the pinch as well. Vacancies and downsizing are seen at the office buildings occupied by third-party vendors, advertisers, lawyers and accountants related to the auto industry. “There is a large trickle-down effect in just about every segment of the office market,” says Fred Klugman, president of Detroit-based Klugman Commercial. Office vacancies continue to creep up in the Detroit office market, but new leases are hard to come by. “There just have not been that many tenants in the market to fill up all the vacant space that is available,” Klugman says. “What’s happening is there are not many new tenants in the market, and most of the existing tenants’ landlords are able to retain them by offering aggressive deals. So, you’re not seeing a bunch of movement.” Landlords have not given up, though. As a way to persuade tenants to sign at their properties, many landlords are offering bigger and bigger concessions in the form of lower rental rates and increasing amounts of free rent. This …
Sonny Culp of Birmingham-based Graham & Co. looks at the Birmingham industrial market through an optimist’s glasses. While the recession has slowed activity significantly — Culp estimates that the bulk distribution vacancy rate is somewhere around 20 percent — transactions are still taking place. And on the bright side, at least the current development standstill means Birmingham won’t have tons of warehouse space sitting empty for the next few months. “The economy has slowed construction, so that when the market rebounds, those projects that need to get filled first most likely will,” Culp says. Birmingham, by location and size, is a secondary market. The city’s industrial market is closely tied to the health of corporate America; when corporations do well, space gets occupied, but in the current stagnant financial situation, it’s harder to find firms hungry for a transaction. “Historically, Birmingham has always been two or three deals shy of a shortage,” Culp says. “Today, you might say that two or three figure is eight or nine.” Sales are now the territory of mom-and-pop companies, and the leasing arena mostly consists of renewals and small leases for short terms. This is the broker’s new reality. “Any transaction person is finding …
Montgomery’s commercial real estate industry is repaving the rocky road of the recession. The small capital city is fairing well, fueled by the state government, the Maxwell-Gunter Air Force Base and the car manufacturer Hyundai. Montgomery’s transportation options also make the area attractive; two major highways intersect in the city, and the Alabama River provides a shipping alternative for sea-fairing businesses. According to Jerome Moore of Montgomery-based Moore Company Realty, manufacturing helps fuel local commercial real estate because industrial activity boosts the multifamily and retail markets. The tight financial markets have affected the resiliency of the industrial market, however, and warehouse vacancy is now a little more common that it was before. The office market remains strong on the heels of government expansion. The one dark area hovering around the industry concerns the financial meltdown and the ever-changing banking landscape. “All the shakeup there, with the merger of Regents and AmSouth [banks] and Colonial’s present troubles, will create significant vacancy in the market from an office standpoint,” he says. Many office buildings were developed with significant vacant space. If a landlord purchased a building that was vacant, he’s having a hard time filling the property, but the recession hasn’t created …
Since the beginning of 2009, six new office projects containing 254,000 square feet of space have been delivered. As of the second quarter, these projects were 53 percent occupied. This strong absorption came primarily from one tenant, Fidelity Investments, which moved into a 112,000-square-foot build-to-suit project designed to handle the firm’s human resources outsourcing work. This project was developed by Forest City Covington in Mesa Del Sol, a master-planned, mixed-use community located just south of the airport on a mesa overlooking the Rio Grande Valley. In a rare occurrence, no multi-tenant office projects were under construction during the second quarter. This is good news for these recently completed office projects. New speculative projects are likely to remain on the drawing board as developers face financing challenges with high pre-leasing requirements. The excess amount of unsold office condominiums on the market (approximately 300,000 square feet) may aggressively compete for tenants by offering lease-to-purchase options. The Albuquerque metro area is poised for growth during the next few years. It has earned some high rankings by national media, placing it among the top metro areas. The bottom line is the Albuquerque metro area is being discovered for its excellent climate, strong workforce and …
During the past 12 months, the Louisville retail real estate market has proven itself to be full of opportunities as well as challenges. An almost equal amount of developments were completed since the beginning of last year as were put on hold. Likewise, as many stores have opened as have closed, and as many submarkets have thrived as have struggled. In spite of these inconsistencies, the Louisville market finds itself uniquely well-positioned for resumed retail growth as the national economy rebounds. The northeast and east retail submarkets remain extremely stable. Within these markets there are more than 2 million square feet of retail space including some of the city’s premier shopping destinations. The Summit, the city’s only lifestyle center, is more than 98 percent leased with a tenancy that boasts some of the most recognizable names in lifestyle retail and fast casual dining. Likewise, Springhurst Towne Center is more than 90 percent leased with the anchor tenants Target, Meijer, TJ Maxx, Liquor Barn and Dick’s Sporting Goods. The landscape will continue to evolve with the completions of Phase I of Chamberlain Pointe, a mixed-use center, and North Commons, a town center development. St. Matthews continues to be widely considered the …