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 …
Market Reports
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 …
Overall, the Austin office market is facing many of the challenges that other major metropolitan areas are confronting. However, the Austin market has relatively strong employment fundamentals and continues to attract office-using employers and skilled employees. The office market should rebound earlier and stronger than the national bounceback once positive absorption returns, with the South, Southeast and CBD submarkets leading the way. Austin currently boasts the strongest employment market of any major metropolitan area in the country, though significant weakening in the office sector is projected due to overbuilding. The amount of vacant space increased by more than 1 million square feet in 2008, an addition of 14 percent to existing inventory. These additions shifted the leverage in lease negotiations to tenants, resulting in lower rents and elevated concessions; this was particularly true in the Northwest and Round Rock/Georgetown/Cedar Park submarkets, which experienced the greatest increases in inventory. As a result, asking rents are forecast to fall to $24.66 per square foot, and effective rents are projected to end 2009 at $20.72 per square foot, annual declines of 6.2 percent and 7.1 percent, respectively. Office investment sales have slowed as financing constraints hamper the market. The median sales price, however, …
There are several trends that are shaping the Dallas industrial market right now. The uncertainty of financial markets and lack of liquidity is certainly hampering the market. Limited access to capital is withholding business expansion. We are also working with motivated landlords that are helping make successful tenant representation transactions, whether it is a restructure or a new deal. Equity is sitting back and waiting for values to continue to fall. I’m seeing short-term commitments on renewals; tenants are reluctant to make large commitments. There is minimum activity in the market as tenants are just making do with what they have. There is growing space availability as more bankruptcies create more inventory — and also opportunities. For example, tenants like Home Interiors and Fitz & Floyd have left the market, creating more available space. There are many 30,000-square-foot to 80,000-square-foot clients in the market but not as many big deals. We have made some deals on space and land that had previously not been available. Tenants are looking for facilities with extra storage areas and ability to secure the truck court. Facilities that have access to DFW airport and 30-foot clear height or greater are a big plus in this …
While the Wichita industrial market may lack the size of its neighbor to the east — Kansas City — it still has a strong and relatively stable presence. Wichita is driven by the aviation industry, and several major aircraft manufacturers and suppliers call the city home. Overall, Wichita has traditionally been an owner-use market with some leasing from larger national companies. With the credit markets dried up and a construction pipeline that has never been that large to begin with, most activity in Wichita lately has been leasing. “January through April, leasing activity was pretty slim, but we are starting to see a lot more inquiries; there are a lot more people in the market looking to relocate, mostly to keep their rents the same in a newer facility,” says Bradley Tidemann, an associate with locally based J.P. Weigand & Sons. Some notable transactions include Weckworth Manufacturing’s purchase of a 100,000-square-foot facility south of the city in Haysville. The owner-user had previously been leasing. In addition, a 50,000-square-foot office and flex warehouse deal is expected to close this month to a local owner-user. On the leasing side, Associated Materials has relocated from a 12,000-square-foot facility to a 35,000-square-foot facility. Additionally, …
At the end of the second quarter, the total industrial square footage in Salt Lake City was more than 110.7 million with an available square footage of 7.6 million, creating a vacancy of 6.89 percent. Big box space in Salt Lake has a 7.29 percent vacancy rate, compared to 5.62 percent in second quarter 2008. Current lease rates are down 2.38 percent from the second quarter of 2008. The hardest hit industrial segment is in the 0 to 5,000-square-foot size increments, which experienced an 11.54 percent decrease in average rents from second quarter 2008. The market is down from the record years of 2007 and 2008, both in speculative development and leasing activity. Like most markets, vacancy rates climbed through the second quarter of 2009, with approximately 1.5 million square feet of existing product coming back to the market. However, the Salt Lake industrial market is in a strong position in the West; third quarter projections are strengthening. Reckitt Benckiser just broke ground on the 200-acre Phase I of Miller Sports Park Industrial Development, a $25 million, 650,000-square-foot distribution center. Another project to note is the planned groundbreaking by The Rockefeller Group on a 365,000-square-foot distribution center on a 71-acre …
Despite a lack of sales or new construction projects, the Milwaukee office market has maintained a steady level of activity this year. “We’re busier this year than we were last year. Whether it’s productive for the economy is debatable, but it is productive for brokers,” says Bill Bonifas, executive vice president with CB Richard Ellis’ Milwaukee office. Many of the deals Bonifas and other brokers in the city are working on are blend and extend deals, in which the landlord renews a tenant early and for a longer term in exchange for concessions, usually consisting of free or discounted rent. “Right now, the psychology is that an ounce of prevention is worth a pound of cure, so the smart owners are doing what they have to do to complete deals and keep their existing tenants,” Bonifas says. Tenants in Milwaukee are happy to sign these deals, since it provides them with savings today. Landlords are also content because they have tenants secured in their properties, which helps keep the asset stable and puts the landlord in a better position to refinance the property. The landlord may be giving up some rent, but the tradeoff is worth it. “It looks like …