Market Data

Market Trends(30)

Companies Slow Down Hiring
Only 33 percent of industrial manufacturers surveyed planned to increase their workforce in the coming year, compared with 61 percent a year ago, according to PricewaterhouseCoopers’ quarterly Barometer surveys. In fact, this year 12 percent plan to decrease workforce size, compared with 7 percent last year. While 84 percent of consumer products companies project 6.6 percent revenue growth this year, only 30 percent plan to add new workers, bringing the percentage of net new employees to -1.1 percent. U.S.-based multinational senior executives expressed optimism about the U.S. economy for the first time in more than a year, but only 40 percent plan to increase hiring this year, down from 59 percent last year. Twelve percent plan to decrease staff this year.

Briefly Noted

• HOSPITALITY — Nashville, Tenn., Chicago, Denver, and Seattle showed the largest hotel occupancy increases in 2006 according to Smith Travel Research.

• INDUSTRIAL — The number of available net-leased industrial properties jumped 33 percent in 1Q07, comprising 18.2 percent of the net-leased properties tracked by Boulder Net Lease Funds.

• MULTIFAMILY — CCIM members gave the apartment sector the highest performance rating of the five property types for the third consecutive quarter, reports 1Q07 CCIM/RERC Investment Trends Quarterly.

• OFFICE — Capitalization rates below 8 percent should stay tight, despite 47 million sf of new product added last year and another 65 to 70 million sf expected to come online this year, says CapLease.

• RETAIL — Drugstores remain a single-tenant investment favorite as median prices for sector leaders Walgreens and CVS rose 9 percent and 6 percent respectively last year, says Marcus & Millichap.

Looking for Local Businesses

Like politics, all real estate is local, and the Austin, Texas, Independent Business Alliance is taking that to heart. Its new Web site, www.IbuyAustin.com, markets commercial properties available for sale and lease specifically to local and independent businesses. While allowing local businesses to shop for property online, it also gives Austin property owners and developers a way to reach what is sometimes a hard-to-market-to crowd. Communication is the biggest obstacle for “locating local businesses in new commercial developments,” says Melissa Miller, AIBA director. Currently the site lists eight developments looking for local retail tenants, including the mixed-use redevelopment of the Robert Mueller Municipal Airport.
Photo credit: Austin Convention and Visitors Bureau

Manufacturing May Return
Looking ahead, freight transport looms as a major source of concern. … The relative costs of manufacturing onshore versus offshore are shifting, and the balance could tip in favor of manufacturing beginning to migrate back to the U.S. from offshore locations.

— “Navigating Today’s Supply Chain Challenges,” ProLogis Supply Chain Review, Winter 2007

Market Differences Matter
Significant differences by market is the most important trend to watch this year and it’s true for all property types, according to PPR’s Real Estate Portfolio Strategist. For example, although a dip in absorption and continued rent growth is forecast generally for the office market, “absorption in Austin [Texas] and Sacramento [Calif.] will slow by 60 percent to 70 percent next year, while increases of more than 100 percent are on tap for Richmond [Va.] and the East Bay [Calif.]. Rents will fall in Detroit, New Orleans, and Columbus [Ohio], while gains of around 9 percent are expected in Seattle and New York, and San Jose [Calif.] will approach 12 percent,” the report says.

Full-Service Hotel Cycles Determined
The average length of a full-service hotel up cycle is 6.7 years, according to a study of 50 full-service hotels by Hotel Investment Strategies, a New York-based lodging investment advisory firm. At the end of 2006 about 75 percent of full-service hotels were in the up cycle, 35 percent were in recovery, and 41 percent were in expansion. The study showed that over the past 20 years market-timing strategies made a substantial difference in long-term returns when compared to a simple buy-and-hold strategy.

European City Outlook
Munich, Germany, was ranked the fourth best European investment city, up from 17th place last year, by Emerging Trends in Real Estate Europe 2007. Preceding it in first through third places were Paris, London, and Stockholm, Sweden. Munich was rated a strong “buy” market in office, retail, and industrial space. Other buy markets include Madrid and Barcelona, Spain, Hamburg, Germany, Istanbul, Turkey, and Moscow.

Midwest Self-Storage Declines
Even property subsectors such as self-storage are affected by local performance, according to the 4Q06 Korpacz Real Estate Investor Survey. “Self-storage fundamentals remain strong in most markets but performance is becoming more and more submarket specific,” says Charles Ray Wilson, CRE, MAI, founder of Self Storage Data Services. As always, asking rental rates were strongest in the South, but with Texas leading instead of perennial leader Florida. However, the “Midwest saw a nearly 4.0 percent decline in median asking rental rates due to soft market conditions in major markets like St. Louis, Kansas City [Mo.], and Milwaukee,” Wilson says. With asking rental rates declining as much as 11 percent in some Midwest markets and occupancy remaining flat at 90 percent, “rental income per occupied square foot declined 2.0 percent after considering the impact of concessions. This declining trend in rent per occupied square foot is regional in scope and started in the first quarter of 2006.”