Buoyed by its proximity to Washington, D.C., and the resulting presence of multiple government installations — as well being the East Coast’s farthest inland sea port — Baltimore enjoys a marginal insulation from the global economic slowdown. The Social Security Administration, the Health Care Financing Administration, the National Security Agency, Ft. Meade and Aberdeen Proving Ground are all federal government outfits in the area that employ Marylanders at well above average salaries. These agencies require significant private contractor support which, in turn, supplies even more well paying jobs. Baltimore, however, is not immune to the credit crunch. At approximately 190 million square feet of space, Baltimore’s industrial market has seen some recovery at the end of the second quarter. Leasing is up half a percent from last quarter, settling at an overall vacancy rate of 10 percent. With asking rates hovering just shy of the $5 triple-net mark, developers have sharpened their pencils a bit after sitting on recently-delivered product in a market that was flooded with new construction for most of 2008. Asking rates were previously based on construction costs and projections that were developed during the boom times of 2006 and 2007. The tenant has become king, with …
Market Reports
Although many believe that the economy is starting to pick up, the “wait and see attitude” of many investors and companies still persists in the commercial real estate marketplace. Many are simply waiting for things to get better or waiting to see if, instead, things get much worse. Frank Gunsberg of First Service Williams says, “The economy is showing signs of picking up, although there have been fits and starts. I'm hopeful that we'll see a rebound by the end of the year and into 2010.” The seemingly perpetual wait and see attitude is having its way with the New Jersey office market as well. Gunsberg notes that many office tenants are asking for short-term lease renewals and extensions. Whereas, under typical market conditions office leases ranged from 5 to 10 years, tenants are asking for 1 or 2 years. “They just are not sure what is going to be happening with the economy,” he explains. “People are reluctant to do things even though this is probably one of the best times to jump. Landlords are willing to make concessions they would not normally make. If you have a good balance sheet, you are an extremely desirable tenant.” Although landlords …
Cincinnati-area multifamily developers are watching expenses, right-sizing and, if they have a management arm, expanding their third-party management operations to increase potential income streams. Buyers are seeking short sales and loan assumptions, allowing buyers to put very little money down to invest and continue to leverage their cash for future purchases. Of course, cash is still king. There are many new buyers in the market, but developers have been extremely quiet, as they shore up their portfolios by trimming overhead, cut costs, and become more lean and efficient. Also, developers have a limited supply of cash that may be needed elsewhere to shore up the company, which prevents them from pouring any money into new endeavors. Their resources are stretched, which limits their ability or desire to purchase land holdings for future development. As the recession recedes and demand grows, the downtown, north (Union Center and Liberty Township) and northeast (Mason and South Lebanon) submarkets will be in need of further multifamily development. In Northern Kentucky, outlying markets in close proximity to downtown that feature good access to the Interstate 75 or Interstate 275 corridors, will continue to need multifamily development. The central Cincinnati submarket, an area north of downtown …
San Diego has historically been a strong retail market with low vacancy and barriers to entry that restrict the supply of new centers. However, the market has not been immune to these difficult times. Rising unemployment and decreased home values have made consumers more cautious, leading to lower sales volumes for many retailers and restaurants creating slightly more vacancy throughout the area. Expo Design Center, Linens ‘N Things, Circuit City and Mervyns are just a few of the big boxes that sit empty along with several former gas stations, Starbucks Coffee, Banner Mattresses, Baja Fresh and La Salsa locations. However, these vacancies created opportunities for Wal-Mart, Kohls, Best Buy, yogurt shops, taco shops and others to enter projects or trade areas that had proven difficult to enter. Many of these former restaurant locations still include the furniture, fixtures and equipment and have created excellent opportunities for new tenants to reopen with little upfront investment. This is particularly true in South County as many experienced restaurateurs and other business owners from Mexico are crossing the border to open businesses. Tenants such as Autozone, Chase Bank, CVS/pharmacy, Gamestop, 7-Eleven and Five Guys are now taking advantage of the lower rents and increased …
While the national economy and commercial real estate in general look to have a tough year ahead of them, Houston and multifamily real estate have a little more room for comfort, although not enough for complacency. Houston is projected by some to have the strongest job growth in the United States for 2009, and multifamily is the only commercial property class to maintain some semblance of normalcy. Houston benefits from the diversity of its economy. Houston has also greatly benefited by one sector in particular, oil and gas, which saw its greatest rally in history just as the financial sector saw its darkest days. Houston continues to maintain an unemployment rate almost 3 percent below the national average and is ranked 18 of 392 U.S. MSAs by Moody’s Economy.com for employment growth between now and 2013. Unlike other commercial real estate (CRE) asset classes, multifamily has been more successful fighting off the financial crisis that shut down the CMBS market and essentially froze CRE transactions across the country. Steve Duplantis, senior managing director of CBRE in Houston, is only aware of one investment grade retail transaction and one investment grade office transaction in the past year. So far this year …
Demosthenes G. Mekras of Marcus & Millichap gives his take on the multifamily market in Miami-Dade County. • What trends do you see presently in multifamily development in your area? Multifamily development for rental projects has been limited to non-existent. Builders are expected to complete 380 units in 2009. This is a drop in the bucket in terms of supply, so one would expect for the fundamentals to be advancing on that metric alone. Unfortunately, continued local job loss and the shadow market have depressed rents and increased vacancies across the board. No class of building or size of project has escaped this downturn, and that is true for every submarket in Miami-Dade County. • Who are the active multifamily developers in your area? Affordable housing developers, such as Pinnacle Housing Group, have clearly been the most active, but they are not entirely sheltered from the turn in the market. In the market-rate arena, the most notable developer has been J. Milton & Associates, a local multifamily developer, owner and operator that is arguably the largest private owner in Miami-Dade County. They have a 97-unit tower under construction in the Fontainebleau submarket west of Miami International Airport, which is slated …
Barry Wolfe and Michael Zimmerman of Marcus & Millichap sit down with REBusinessOnline.com to give their take on the South Florida retail sector. • What trends do you see presently in retail development in your area? While a recovery in the retail property sector may not start for several more quarters, the slowing in construction will help to set the stage for an eventual rebound in occupancy and rent growth. There is little to no construction currently beginning in South Florida; therefore, completions in 2009 will fall considerably less than the average posted over the past 5 years. • What type of retail product is doing well in your area? Retailers holding up well during the on-going recession are necessity-based retailers such as grocery, drug stores and gas stations. Retailers offering lower price points on their goods and services, such as Dollar General and Family Dollar, are also doing well. • What retailers are new to your area? Kohl’s continues to open stores throughout South Florida. Anthony’s Coal Fire Pizza is also expanding. Otherwise, we are seeing minimal retail expansion and development in the current market environment. • Please name one or two significant retail developments in your area. What …
When it comes to the metro Detroit area, perception may not equal reality. The once-and-future motor city is meeting the challenges of a downsizing auto industry and a national economic slow down head on. The changing dynamics have altered the names of expanding retailers, but this shift has managed to present an opportunity to many local entrepreneurs and market savvy retailers. Similar to the rest of the country, the metro Detroit retail sector has been impacted by consumer pull back, national big box closures and the reduction in new store openings. Store closures from Mervyns, Circuit City, Cost Plus, Linens N Things, La-Z-Boy and Office Depot have increased the overall vacancy rate to 9.9 percent, and left landlord’s seeking replacement retailers and/or new uses for empty space. Increasing vacancy is pressuring the market, slowing demand for new development in greenfield growth markets and creating better opportunities for new locations in dense, established markets. Aside from Taubman Center’s Mall at Partridge Creek, metro Detroit did not get caught up in the over development of lifestyle centers in recent years. Instead, Michigan developers focused on smaller, traditional grocery centers or Walmart, Meijer or Target-anchored endeavors. A number of these projects have recently …
Alex Zylberglait CCIM, SIOR and Ryan Shaw of Marcus & Millichap answer pressing questions on the state of the Miami office market. • What trends do you see presently in office development in your area? Office development is relatively slow at this time except for the projects that were already in the works prior to the market downturn, specifically projects in Downtown Miami as well as in Coral Gables and Doral. Given the current market conditions, it is unlikely that we will see any significant development for the next few years. In addition, most office assets today could be acquired at below replacement cost therefore stifling the development of new product. There are a few exceptions that include some medical office buildings and some buildings that are being built as “green” buildings, which is a trend likely to be around for a while as long as there is development. In fact, many government tenants are requiring that any space they lease be in a building that complies with the latest “green” standards. • Who are the active office developers in your area? Rilea Group is active in Downtown Miami as is MDM Development Group, which is working on Met2, and …
In Buffalo, New York, the office market is in the midst of a slow recovery from the lows experienced in the early 2000s. Even with the recent economic downturn, the statistics show that this market is still showing improvement. The inventory continues to grow at a slow, controlled pace and net absorption of space is positive. There is a growing preference for regionally based companies to invest in Buffalo. Two recent corporate relocations, HealthNow and New Era Cap, had a significant impact on the market by moving their headquarters operations into Buffalo’s Central Business District. HealthNow took 469,000 square feet of space and New Era Cap signed on for 130,000 square feet. The second trend has been the growth of governmental agencies and their policy of leasing privately owned facilities. Over the past 3 years, 600,000 square feet of government tenants have been moved to new, privately owned, Class A buildings. The best example of this is the relocation of 280,000 square feet of Federal GSA tenants from a government owned building to the new Federal Center at 150 S. Elmwood Avenue. The two largest tenants were the Veterans Administration, which leased 85,000 square feet, and the IRS, which took …