Market Data

Market Trends(7)

Downtown Convenience

After becoming a suburban staple, convenience stores now are entering the urban market in search of new growth opportunities, primarily in successful 24-hour cities that have the residential base to support retail. And the opportunities are there, reports a Convenience Store News article, especially for c-stores that are willing to vary their format and merchandise to cater to specific locations and customers. Customer bases vary from block to block, say urban retailing experts, so c-stores may find college students, office workers, or retired empty-nesters shopping the aisles, depending on location. Successful stores vary their merchandise accordingly. While urban real estate costs are higher than those in suburban or rural locations, c-store retailers often can make money with less space in unique locations, such as hotel lobbies. These upscale settings, including downtown rental and condo buildings, also offer opportunities for c-stores to develop a more sophisticated or premium brand that retails a higher line of carry-out foods and other products. However, competition is strong coming from drugstores, department stores, and even supermarkets that have downtown locations.

Green Building Grows

Nonresidential green construction is forecast to hit $21.2 billion this year, a jump of 58 percent from 2006, according to FMI’s 2008 U.S. Construction Overview. The consulting and banking firm also predicts 5.8 percent growth in overall construction this year, with healthcare, public safety, office, and transportation segments seeing the most activity.

Top 5 Most Contaminated Cities

Per Capita

City Population
(in milions)
Brownfields
(no. of sites)
Per
Capita
Cincinnati 2.1 22,992 92
Seattle 3.3 46,299 70
Detroit 4.5 64,541 69
San Diego 2.9 51,009 58
Indianapolis 1.7 33,857 49

Source: Environmental Data Resources

Briefly Noted

  • Hospitality — Total per-room development costs for building franchise hotels (excluding land) range from $27,000 to $82,000 for economy brands, $38,000 to $106,000 for midpriced, and $66,000 to $376,000 for first-class hotels, according to the 2007 HVS U.S. Hotel Franchise Development Cost Guide.
  • Industrial — In the first 10 months of 2007, 16 percent of industrial transactions took place in secondary and tertiary markets, outside of the 57 primary markets tracked by National Association of REALTORS®.
  • Office — San Francisco, San Jose, Calif., New York, Denver, and Austin, Texas, are forecast to have the highest rent gains over the next two years, according to Marcus & Millichap.
  • Multifamily — Apartment property sales should increase by 10 percent in 2008, with secondary and tertiary markets seeing the largest increases and cap rates averaging between 6.25 percent and 6.50 percent, according to Marcus & Millichap.
  • Retail — Although the U.S. retail vacancy rate is ticking upward and new supply is staying ahead of demand, the average marketing time for selling strip shopping centers decreased almost 10 percent in 4Q07 from 4Q06, according to the Korpacz Real Estate Investor Survey.

Rehabbing the Nation's Attic

After Congress suggested the Smithsonian Institution “take a creative approach” to financing the renovation of the shuttered Arts and Industries Building, the nation’s museum issued a request for proposals for possible redevelopment plans, indicating it was open to commercial and mixed-use retail developments but not hotels, nightclubs, or condos. Built in 1884 and closed in 2004 for safety reasons, this national historic landmark sits right on the National Mall in Washington, D.C. Smithsonian representatives told Congress it would cost $65 million to renovate — a conservative estimate no doubt.

Medical Spas Move to the Mall

100 Oaks Mall

Retail leasing agents looking to attract the baby boom demographic to their shopping centers and malls might consider leasing space to aesthetic medical clinics or medical spas. There are 2,500 medical spas in the U.S. today up from less than 50 six years ago, according to the International Medical Spa Association. Skinovative, a franchise skin treatment company, operates 10 clinics, five of which are located in shopping centers in Arizona, Idaho, Texas, and Las Vegas, according to Shopping Centers Today. The company hopes to expand to 200 units by 2010, moving into markets such as Tampa and Orlando, Fla., Austin, Texas, Seattle, and Charlotte, N.C.

Terrorism Lessening Its Grip

Although in December 2007 President George W. Bush signed a bill that extends the Terrorism Risk Insurance Program for seven more years, retailers and retail developers seem less concerned with the threat of terrorism, according to a Retail Traffic survey. Nearly half of all retail developers have no terrorism insurance on their properties, while overall, 21 percent of properties have terrorism insurance. But developers may be taking their cue from retail tenants. Fifty percent of all retailers said terrorism is not at all important, while only 4 percent said it was extremely important.

Affiliation by the Numbers

As of November 2007

Company Affiliates Affiliate Offices
Sperry Van Ness 198 215
Coldwell Banker Commercial 175 230
CB Richard Ellis 100+ 100+
Cushman & Wakefield 47 93
Grubb & Ellis 46 68

Source: Commercial Property News

Medical School Revives Nashville Center

Vanderbilt University Medical Center has leased half of 100 Oaks Mall in Nashville, Tenn., and will transform the retail center into the school’s second-largest medical center. Known locally as Nashville’s first indoor mall, the 57-acre 100 Oaks is still a thriving retail center with several national tenants such as Michael’s and PetSmart on its first floor. The medical center will fill the second and third floors as well as an adjacent office with outpatient clinics and medical offices, a fitness center, and a child-care center for university employees. The mall’s parking as well as access from Interstate 65 were two of the factors that influenced the medical school’s lease decision.

2007 Hotel Development Costs

$/per room averages

Sector Land Building Soft Costs Furniture, Fixtures, & Equipment Working Capital Total
Budget/ Economy 16,300 50,000 4,600 9,100 3,300 76,100
Midscale w/o Food & Bev-erage 18,700 78,100 12,700 10,700 4,500 119,800
Extended Stay 17,100 89,800 13,300 14,600 3,600 160,800
Midscale Food & Beverage 20,000 84,700 15,000 14,100 4,200 139,400
Full Service 23,700 133,900 26,300 25,300 7,600 255,500
Luxury/ Resort 113,700 386,900 123,200 61,300 23,400 729,100

Source: HVS

Midwest Warehouse Gains

While overall warehouse net absorption was down significantly in 2007 from previous years, Midwest warehouse demand has been rising since 1Q07, according to Lucian Suran, an economist for Torto Wheaton Research. The reason is both global and regional. On the global front, a weak dollar has increased the exportation of manufactured goods overseas — and the Midwest is the center of the U.S. manufacturing region. In addition, many companies that manufacture durable goods in the U.S. import parts from other countries. For example, GM and Ford cars contain parts manufactured in many countries. Thus, “the Midwest needs to import more to export more,” Suran says. Regionally, domestic shipping companies are beefing up their inland distribution centers close to customers. For example, “FedEx is significantly expanding its operations in Indianapolis and Ohio as part of a multibillion dollar plan to nearly double FedEx’s daily package volume capacity in North America,” Suran adds.

MSA Construction Costs

Comparative costs of construction

New York $100
Honolulu $94
Boston $90
San Francisco $89
Washington, D.C. $88
Los Angeles $82
Seattle $79
Portland, Ore. $69
Phoenix $69
Denver $68
Orlando, Fla. $67
Las Vegas $66

Source: Rider Levett Bucknall

Worth Repeating

“A solid investment strategy for North America in 2008 would tilt toward low-risk core investments — recession-resistant property types such as apartments, healthcare facilities, and senior and student housing. Those looking for higher returns should look to the distressed sectors such as housing and commercial mortgage-backed securities.”

—William Maher, head of North American

Rent Growth Outlook

in percentages

Sector 2006 2007 2008
Office 5.2 8.0 2.0
Industrial 1.4 3.3 1.3
Retail 3.9 2.2 1.9
Multifamily 4.1 3.1 3.8

Source: REALTORS® Commercial Alliance

Could Imports Sink LA’s Industrial Market?

A weak dollar is slowing international trade, specifically imports into the world’s busiest ports of Los Angeles and Long Beach, Calif. Could this, in turn, affect Southern California’s 1 billion sf of industrial properties? asks a Slatin Report article. Imports were down significantly this year at the two ports, which account for 40 percent of all traded goods into and out of the U.S. The annual 10 percent growth rate is expected to flatten to 5 percent to 7 percent, according the port officials. However the Los Angeles Basin industrial market is so strong that experts may welcome a little breathing space. Absorption and rental rates are headed up while lack of land is limiting new construction. If market watchers need extra worry they might look to the Inland Empire building boom where more than 25 million sf of space is under construction. Rising fuel costs could curb the value on these sites 75 miles inland from the ports.

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