These haven’t been the easiest times to maintain optimism or even a somewhat sunny outlook, which is a crucial characteristic for those of us who lease office properties in Atlanta or anywhere else in the United States. Everywhere we turn, we’re constantly pounded with negative economic news as the pillars of American industry teeter and equity markets gyrate. But unlike the frozen credit markets, at least the reeling equity markets aren’t completely stagnant. We’re starting to see signs of life, and the main question on everybody’s mind is have we hit bottom? Let’s hope so. There are a few early indicators pointing up, and long-term prospects suggest that metro Atlanta can maintain the growth that transformed the city during the past 30 years. First, Jones Lang LaSalle research has found that metro Atlanta’s office markets, including sublease space, absorbed 182,432 square feet in the first quarter of this year. That would’ve been a bad quarter in 2006, but coming off a year where the office market had negative net absorption of more than 850,000 square feet, we’ll take it. Unfortunately, the urban markets — Buckhead, Midtown and Downtown — posted negative net absorption of 47,640 square feet in the first …
Market Reports
For Doug Malone, a retail brokerage and leasing associate with Wichita, Kansas-based J.P. Wiegand & Sons, “The good news about Wichita is that we have been a little pocket of prosperity for a number of years, and we didn’t get hit until just recently with the economic problems that the rest of the country had.” While retail in larger markets struggles, the smaller Wichita market has remained steady. This is due partly to the conservative nature of real estate professionals in the market and partly due to the fact that overbuilding tends to happen less in secondary markets. But the recession is starting to be seen here. “Wichita has a tendency to feel those impacts last and to come out them last as well, but we don’t have the real ups and downs of a lot of other markets” Malone says. “Although, what we’re seeing now, in terms of a slowdown in retail activity, we probably haven’t seen this kind of slowdown since post-9/11.” This slowdown has many retailers taking a wait-and-see approach when it comes to doing deals. Since most major new projects in the market are done by local developers — who know the market and can withstand …
The prominent trend in retail development thus far in 2009 has been its absence. Developers are either completing projects already underway or remodeling existing properties to maximize marketability. Only 15 new buildings were delivered in first quarter, totaling approximately 156,000 square feet (another 856,000 is slated for delivery later in the year). The overall vacancy rate for retail space in the first quarter was 9.2 percent, with negative net absorption of nearly 850,000 square feet. Rental rates climbed to $21.06 per square foot per year (approximately $1.75 per monthly). That represents a 1.9 percent increase in rental rates in the current quarter, and a 6.13 percent decrease from first quarter 2008. Asking rents do not reflect market activity, which is being affected by tenants demanding and owners making major concessions in order to close transactions. As for hot spots, everyone is watching Sacramento’s K Street redevelopment with a hopeful eye toward an emerging downtown entertainment district. The city has redevelopment funds to draw the attention of potential tenants and it could be successful, even if it means buying the tenants. Newly delivered retail projects include 5065 Quinn Rd., a 37,914-square-foot general freestanding building occupied by Camping World; a 20,000-square-foot building …
In general, the economy has created an atmosphere of cautiousness as companies rethink expansions and settle for the status quo. Many companies, such as those engaged in the auto industry, are experiencing a reduction in orders and are reducing their production, inventory and workforce to adjust to this trend. On the bright side, Foxconn’s industrial park south of Santa Teresa, New Mexico, will provide thousands of new jobs to the region. Suppliers and logistic companies that service Foxconn will locate on both sides of the border, affecting Santa Teresa as well as west El Paso, as the companies compete for a piece of the pie. Fort Bliss has substantially benefited from the BRAC realignment (See “A Strong Pulse” on the cover). With additional brigades being located at Fort Bliss, the further development of the base infrastructure, housing and tactical facilities are in full swing. With the influx of the more than 60,000 people (which include military personnel and their families), the El Paso region will require additional city/county governmental services, educational facilities, off-base housing and vendors to accommodate this growth in the community. The benefit to the El Paso community will be affected exponentially. Overall, the market is not in …
While the meltdown of the housing market originally benefited the multifamily sector — as more homeowners transitioned to renters — the current recession and its rising unemployment has started to affect activity. “Right now, it is all about the economy,” says Kevin Wolfgang, president of New Castle-based Evergreen Realty and recently elected president of the Delaware Apartment Association. “Our industry is directly affected by the job market, so the increased amount of unemployment has created significant operation challenges.” Multifamily owners in Delaware are weathering the storm by focusing on the operation of the properties — trying to find ways to make them as efficient as possible. This has slowed down sales considerably. Owners who are still receiving a steady cash flow are seeing no reason to sell for less money. “Most investors are very cautious right now,” Wolfgang says. “No one is chasing deals, and there is nothing that I have seen as having a major impact on the market right now.” Evergreen Realty’s main activity has been its purchase and upcoming redevelopment of Hampston Walk Apartments, a 370-unit community located in New Castle. The company purchased the blighted property in mid-2008 and is repositioning it with renovations to unit …
At close of the first quarter of the year, the Southeastern Wisconsin retail vacancy rate totaled 10.4 percent, up 1.4 percent from a year ago. The growth in the greater Milwaukee retail vacancy rate was primarily driven by the closings of several large-format retailers over the last 6 months. Changes in the retail environment have caused a shift in the Southeastern Wisconsin retail real estate market. More retailers are looking to existing developments or vacant boxes to expand as the tide of new development wanes. There are several major retailers looking to retrofit existing stores rather than build new boxes. Despite the negative news and stores closures, the Southeastern Wisconsin market is still experiencing some significant retail activity: • Wal-Mart is expanding and/or remodeling several area stores to include more grocery items. These stores include Southgate, East Capitol Drive, Midtown, Brown Deer Road, Franklin and Delafield. The retail giant is also moving forward with plans for new stores in Muskego and Waukesha. A new Wal-Mart Supercenter and a Sam’s Club will open at Somers Market Center this summer in Somers, which is located in Kenosha County along Highway 31. • Target has opened two new stores at Prairie Ridge in …
Last year brought rapid change to the Inland Empire industrial market, which finished 2008 with increased vacancy rates, rising cap rates, negative absorption and negative rent growth. Throw in the region’s unemployment rate of 10 percent — one of the highest in the country — and it’s no surprise that the Inland Empire industrial sector will continue to have its challenges in 2009. That said, this market is viewed by most as having strong long-term fundamentals, which will continue to attract institutional capital and drive tenant demand. Industrial leasing is expected to remain soft this year with landlords going to great lengths to secure and retain occupancy. Vacancy rates, currently at 22 percent in the east and 12 percent in the west, will continue to trend upward as leases expire and companies continue to downsize. Effective rental rates have dropped 20 to 25 percent in the last 9 months, with flat to negative rent growth expected for 2009. As retailers continue to downsize and outsource their distribution function, third-party logistics providers will pick up the slack. Southern California is home to more than 21 million people, who may be buying fewer jet skis and flat-screen TVs, but will still need …
Office As with many markets around the country, office development in San Diego has ground to a near halt. Many projects are stalled in the pre-development phase or are just completed, but new groundbreakings are scarce. Cash flow is king, and landlords, who were happy to purchase partially vacant buildings a couple of years ago, are now eager to lease up their buildings as quickly as possible and have come to terms with the fact that they need to lower lease rates in order to do so. The average downtime for vacant space is 1 year and then some, so landlords are willing to make concessions, including more months of free rent and increased tenant improvements. Overall, tenants can expect to enjoy a 15 to 20 percent total lease value reduction compared to a year ago, and many tenants who signed at high lease rates several years ago are opting to re-structure their leases early in exchange for reduced rates. Exceeding 25 percent in vacancy, the Carlsbad submarket has been especially hard-hit by the economic downturn, mostly due to overbuilding in that area. The ever-popular Del Mar and UTC submarkets have probably fared among the best, but still hover near …
The northern Nevada office market remained weak in 2008 with all four quarters recording increased vacancy and negative net absorption, a continuation of a trend that began in 2007 when three out of four quarters finished with negative net absorption. Last year finished with negative 116,000 square feet of leased office space and vacancy exceeding 20 percent. Directly related to the drastic downturn in the residential real estate market, Reno’s office performance had been fueled by the national homebuilders, mortgage companies and title companies, who saw their requirements for office space drop as quickly as the demand for their products and services. The area’s office sector quickly changed from growth and high demand to nearly non-existent demand and increasing vacancy, thus leaving investors and developers scrambling for tenants. With rising vacancy and demand declining, many office property owners are willing to slash effective lease rates to secure tenants. The average asking rate for Class A properties at year-end 2008 was $22.08 per square foot, a $1.56 less than a year earlier, and Class B was down to $16.68 per square foot. During the highs of late 2006, the effective rates for class A product exceeded $27 per square foot. With …
The Reno-Sparks apartment market will continue to face occupancy challenges due to job losses at local casinos, hotels and other gaming-related companies due to the current recession. Effective rents will remain flat in 2009 and in some cases decrease, while occupancies are expected to decline, building on a trend established in second half 2008. Landlords will be forced to offer concessions as they compete for new and existing tenants. Apartment owners across the market are vying to attract new tenants and retain existing ones. As a result, concessions are ranging from reductions in deposits to a full month of free rent, especially at properties with management issues. Remaining flat, the local economy was experiencing unemployment of approximately 8 percent in November 2008 due to layoffs in many sectors, including the leisure and hospitality industry. In the 1970s, 30 percent of the employees in Reno worked in the gaming industry, but today only 17 percent are involved in that sector. In fact, the leading employers of Reno’s increasingly diversifying economy are the Washoe County School District, IGT, Catholic Healthcare West and the gaming-hospitality industry. Looking at fundamentals, fourth quarter 2008 vacancy was 9.4 percent in the Reno-Sparks MSA, reflecting an increase …