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 …
Western Market Reports
The Seattle market is currently experiencing the lowest tenant demand in 30 years. Both early stage companies and strong credit corporations are tightening their belts and are reluctant to commit capital. Large companies with strong credit usually look for cost saving consolidation opportunities, but unfortunately, this requires some up-front capital, which is being frozen by financially savvy executives. Many new developments commenced 2 to 3 years ago as Seattle was rated one of the top five real estate markets in the nation. Those projects broke ground without the foresight of the recession that followed. There are currently four new vacant office buildings complete or close to completion. Those buildings include West 8th, 1918 Stewart, 2201 Westlake and 1100 Eastlake. All of their anxious landlords and investors are competing for a small pool tenants. Additionally, the downfall of Washington Mutual has brought thousands of additional square feet onto market. JP Morgan Chase refuted most leases through its bankruptcy acquisition of Washington Mutual. This perfect storm of over supply totals more than 6,500,000 square feet of class A and B office space available for lease. The Eastside markets have been saved from excessive vacancy owing to Microsoft’s expansion last year. However, overall …
The proverbial good news–bad news scenario is at play when it comes to land values and transactions in Albuquerque, New Mexico. As always, the good news first. Albuquerque did not experience the effects of mammoth overbuilding and the resulting plummeting disintegration of value that has infected many other markets. The 180 degree reversal of values that commenced in the run-up to 2008 in areas like Phoenix and Las Vegas and continues as we write is in stark contrast to current Albuquerque price levels, where generally most commercial property and land in particular have suffered far less than in those areas and other markets nationally. There is, however, still bad news if you’re a local owner, prospective seller or broker trying to make a living in the land business. Historically Albuquerque has lagged behind most other areas of the country in economic timeline trends. If you subscribe to the theory that a housing sales slump is the precursor of a commercial real estate decline it’s easy to extrapolate why non-residential land here is beginning to experience a current decrease in demand. Current reports from appraisers and brokers in the residential subdivision business provide a gloomy picture of north of 10,000 lots …
If there’s any good news to be had in today’s challenging economic climate, perhaps it’s that now is an opportune time to be an apartment investor in metropolitan Phoenix. While the credit crunch has undeniably put a dent in sales activity — the difference between $52 million so far this year compared to $600 million for all of 2008 and $3.5 billion during 2007 — interest from well-capitalized private investors hunting for bargains among the rising selection of lender-owned properties for sale may provide a boost moving forward. The number of distressed properties has crept into the double digits since early 2009. Offerings in good locations, where the pricing reflects the market correction, can easily garner 15 to 20 offers, on par with bidding activity occurring even during the best of economic times. Active investors are primarily individuals and private capital sources searching for positive leverage and high returns. Meanwhile, REITs and advisors looking to firm up balance sheets, developers needing to pay off maturing construction loans, and lenders hoping to unload distressed properties make up the bulk of sellers. Another piece of good news: tighter lending requirements, coupled with a downturn in population and job growth, have effectively put …
Odds are that Las Vegas developers, landlords and brokers did not mind putting 2008 in the rear-view mirror. Unfortunately, odds are also good that 2009 will be even more challenging. Commercial real estate certainly finds itself in unprecedented times. At the end of 2008, the Las Vegas office market had about 5.5 million square feet of vacant space, with the vacancy rate rising to 17.24 percent. This number doesn’t include the increasing amount of sublease space on the market or what is even harder to track, shadow space — unused space not being marketed. Even with the amount of vacant space on the market, there is roughly 2.2 million square feet under construction, most of which will hit the market in 2009. Based on historical absorption averages, the estimated supply of existing vacant space now would take about 5 years to absorb. The average asking lease rate ended 2008 at $2.40 per square foot, but is expected to decrease during first quarter 2009. Landlords have tried to maintain their face rates, but will generally bend significantly to make a deal. Available shell space on the market has more leasing challenges than second-generation space. With the cost of construction exceeding the …
Las Vegas’ retail market is now clearly showing the strain of the recession. Decreased consumer spending has directly impacted local retailers, as unemployment climbs and shoppers find themselves with less discretionary income. Holiday season revenues were the weakest on record, and luxury stores, apparel chains and department stores all reported declining sales. Meanwhile, developers continue to experience difficulties securing financing for planned projects. As a result, several planned projects are on hold, and few of the currently planned and under construction projects should open in 2009 and 2010. Underperformance, the liquidity crunch and tighter credit terms with vendors, combined with the recession, made it impossible for many large box retailers to remain in business, thus bringing on the vast amount of power center vacancies. Small local retailers relied on SBA loans and equity from residential properties and saw both of these sources vanish, thus preventing many from opening new stores and leaving many strip centers with higher vacancies. Retailers that are performing well are very cautious regarding expansion. With already close to 3 million square feet of vacant large box retail space in the Las Vegas market, expect to see vacancies continue to rise this year. However, increased vacancies provide …
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 traditionally strong retail leasing market on the west side of Los Angeles mirrors the trends experienced throughout the rest of the county. The last part of third quarter 2008 saw a rise in retail vacancies, which is emblematic of the ever-worsening economy as seen in the rise in bankruptcy fillings, many retail closings and shelved expansion plans. Rental rates throughout the west side have been falling by as much as 20 percent while vacancy rates have risen from 3 to 4 percent in second quarter 2008 to 5 to 7 percent. However, unlike many national landlords, there have been few reports of west side landlords aggressively seeking to renew tenants earlier than normal. Even the glamorous Beverly Hills submarket has seen this vacancy increase with properties staying on the market longer and asking rental rates slipping 10 to 15 percent. Yet it should be noted that asking rates on the famed Rodeo Drive have been between $45 and $60 per square foot per month, and even far less traveled Brighton Way has seen landlords getting more than $20 per square foot per month. The Golden Triangle should get a boost from the November 24, 2008, opening of the five-star …
The Phoenix retail market expansion has slowed down considerably as it experiences the continued effects of the economic downturn. A decline in consumer spending, negative job growth and a housing market still struggling to recover will keep development to a minimum while vacancies increase in existing centers. At the end of 2008, the valley’s vacancy was 10 percent and should rise above 11 percent during 2009. A return to record vacancy rates seen during the 1980s is unlikely because of the slowdown in construction. In 2008, there was roughly 6.5 million square feet of new retail space delivered, but in 2009 planned projects will be put on hold. One reason is there is no pre-leasing being done, and in many cases banks require guaranteed tenants before they will consider construction loans. In response, developers are changing their focus from new ground-up development to infill and redevelopment properties. Expect more national, regional and local retailers to close during 2009. The list of major store closures in 2008 included national retailers Mervyn’s, Linens ‘n Things and Circuit City. There is still a short list of national retailers looking for space in the valley, including Wal-Mart, Fresh & Easy, Fry’s and Dunkin Donuts. …
The trend toward more workforce and low-income housing will be a very big part of Los Angeles’ future. Additionally, new and existing housing located near major transportation corridors will be in high demand amongst investors. The City of Los Angeles has proposed a 5-year housing plan with a $5 billion price tag to help provide more housing for those two market segments. Los Angeles apartment fundamentals are expected to have softened mildly coming into 2009, though vacancy will still be one of the lowest rates in the nation. Predictions are that the vacancy rate will have risen slightly to 4.5 percent by year-end 2008, then remain unchanged this year. The era of vacancy in the vicinity of 3 percent is not expected to return. Rent gains are decelerating from the invigorating pace of the past decade. This year, Los Angeles’ average asking rate is predicted to rise only slightly, approximately 0.7 percent, to $1,469 per month. In November, the 40,544-unit Beverly Hills submarket had an average asking rent of $1,909 per month; the Santa Monica submarket was at $2,404 per month; the 43,645-unit Wilshire/Westlake submarket at $1,308 per month; the 50,936-unit Hollywood/Silver Lake submarket at $1,468 per month; the Sherman …