Market Data

Market Trends(14)

Art and Condos Side by Side

Last fall Denver opened its 146,000-sf Hamilton Building addition to the Denver Art Museum, designed by Daniel Libeskind, a world-renowned architect, probably most famous for his as-yet unbuilt World Trade Center Tower in New York. Denver is one of a number of secondary markets upping its cultural ante and spurring downtown development with big-name designed institutions. But the Mile-High City also boasts a Libeskind-designed condominium tower adjacent to the museum - which has had no trouble selling units for more than $500 psf - about $140 psf more than comparable luxury units in the city, according to the Wall Street Journal.

Tighter Hotel Supply Predicted

Lodging Econometrics reduced its forecast of completed 2006 and 2007 hotel projects by 4,796 and 3,470 rooms, respectively, calling the reduced supply a "silver lining," setting the stage for another year of "record-breaking revenue and profit." However, investors should keep an eye on Las Vegas, Miami, New York, Orlando, Fla., Philadelphia, Tampa, Fla., and Washington, D.C.: "All rely on leisure travel and are dependent on the discretionary spending of consumers."

Viva Las Vegas!

Las Vegas will gain an estimated 42,000 hotel and hotel-condo rooms in the next five years, the largest increase the city has seen in any five-year period, according to Bentley Group Real Estate Advisors.

Briefly Noted

  • HOSPITALITY - After rising 37 percent in 2005, the median hotel price per room rose 5 percent as of 3Q06 to $76,000; 25 percent of all hotel sales in the last year were for properties $20 million or more, according to Marcus & Millichap.

  • INDUSTRIAL - Tampa, Fla., Houston, Portland, Ore., Orange County, Calif., and Long Island, N.Y., posted the nation's lowest 3Q06 availability rates, ranging from 3.4 percent to 5.8 percent, according to CB Richard Ellis.
  • OFFICE - North Carolina, Texas, Ohio, Georgia, and Tennessee topped Site Selection's 2006 State Business Climate Rankings based partly on a survey of corporate site selectors.
  • MULTIFAMILY - Dementia care units had the largest occupancy gain of all senior-housing facilities last year and showed strong revenue growth in Kansas City, Sacramento, Calif., and Portland, Ore. Overall cap rates average 9.5 percent, according to Marcus & Millichap.
  • RETAIL - Good news for Wal-Mart: Consumers in most developing countries prefer food shopping at one-stop supercenters instead of conventional supermarkets, according to Retail Forward's Global Food Drug Mass Retailing Shopper Update.

"The efficiency of information, the specialization of capital, the domination by institutions instead of entrepreneurs, all these things have produced lower risks [in commercial real estate]. If you have lower risks, you should not expect to get the same returns you got a decade ago. We will never go back to a 9 percent [cap rate] world."

— Dan Dubrowski, principal of The Lionstone Group, Houston

Downtown office tenants in St. Louis pay 19 percent less rent than their suburban counterparts.

Downtown Office Bargains

In most major cities, class A office tenants pay a premium for CBD locations, as much as 135 percent in Manhattan to 15 percent in Los Angeles. But in a number of secondary markets, downtown class A space is a bargain compared with nearby suburbs. In the following markets here's how much CBD office asking rents trail suburban locations:

Are Local CEOs Long Gone?

It used to be a well-placed phone call between a prominent local banker and a local company CEO could get the ball rolling on just about any civic project. But no more, says a Brookings Institution report, "Corporate Citizenship and Urban Problem Solving." Today's pool of local civic leaders tends to be less influential than in the past, says the report on 19 metropolitan-area business-civic organizations. Corporate mergers have depleted the ranks of local CEOs, replacing them with more transient executives who have fewer local roots and less time for civic responsibilities. And the local banker is a victim of the banking industry's massive reorganization. Today's regional bank manager has less clout and time and probably isn't staying in town too long since thriving financial-services careers depend on promotions to bigger markets. The report found that university, foundation, and other nonprofit leaders have expanded their local civic roles and that paid professional managers handle many civic projects. And it wouldn't be surprising if local commercial real estate executives, who often have strong local ties, step in to fulfill civic duties.

Retail Real Estate Value

A look at real estate as a percentage of total value.

Rehabbing Mall Parking Lots
"They paved paradise and put up a parking lot," Joni Mitchell lamented in 1970, but today, those acres of asphalt surrounding shopping malls are being torn up and replaced by offices, condos, and hotels, as regional shopping malls morph into mixed-use developments. Surface parking, access roads, and landscaping account for about 75 percent of regional malls' total acreage, according to Shopping Centers Today. Yet most mall parking lots only fill up 18 days of the year, so leading REIT mall owners are looking at ways to use the land more profitably. Best-suited for reconfiguration are well-known urban malls and poor performing malls in markets without a town center, experts say. The payoff in additional leasing revenues must offset higher structured-parking costs, but malls such as Arizona Center and Biltmore Fashion Park in Phoenix and Fashion Square and NorthPark Center in Dallas already are leading the way.

Lenders' Expectations Decline

Lenders give U.S. economic performance a C through mid-2007, a drop from more positive ratings last year, according to the Phoenix Management Services 3Q06 Lending Climate in America survey. Nearly 60 percent of lenders surveyed expect their loan portfolios to soften and more lenders said they would tighten loan structures in the coming months, with the biggest increase in tightening occurring in loans under $10 million.

Property Investment Outlook

Apartment communities such as Westlake Villas in San Antonio, Texas, are good investment choices for 2007.

Hot Industry Trends, 2007-08

• Loan workouts

• Sustainable design

• Infill development

• Increased demand for one-stop service

• Healthcare industry growth

• Rising interest rates

Source: CREW Network Survey


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