Market Data

Market Trends(24)

Tomorrow's Apartment

In “the first wave of post-recession apartment developments coming out of the ground, small, dense, urban, and cool are ruling the day — even outside core downtown markets,” according to Multifamily Executive. Architects and developers currently working on apartment projects say that smaller but denser projects are being built, due in part to financing constraints.

These projects are heavily weighted toward one-bedroom apartments with a footprint that has shrunk by 20 percent: Unit size averages 600 sf for student housing, 700 sf for mid-market projects, and 800 sf for luxury. They feature galley kitchens, undefined living spaces, and narrower bedrooms because who needs room for a big TV today? Just hang the flat-screen on the wall.

While there may not be much counter space in the kitchen, those counters need to be granite or some other high-end material. Exposure to TV design shows and the rash of broken condos converted to multifamily have raised the bar among Gen Y renters for high-end finishes, experts say.

Common areas are also changing: Instead of separate, special-purpose rooms, one or two large rooms are divided by furniture or plants into different purposes, such as business center, cafe, and lobby. And clubhouse media rooms are so yesterday — screening areas have moved outdoors as part of the barbecue, pool, or rooftop deck social centers.

Canada Office Market Midyear 2011

Looking for a recovering office market? Go north to Canada, where the midyear 2011 national office vacancy rate stands at 7.8 percent, down from 9.9 percent a year ago, according to Avison Young. Six of the 12 major markets tracked have vacancy rates below the national average, including Vancouver at 7.6 percent. Although Toronto’s rate is 8.4 percent, it fell 280 basis points from last year, the largest drop in the major markets, followed by Montreal with a 260 bps drop to 8.5 percent. Canada’s CBD vacancy rate is an enviable 6.2 percent, down 200 bps from a year ago.

Such figures have kick-started new development: More than 8 million sf is under construction in Canada, with 70 percent of it preleased. More than two-thirds of the new development is in downtown areas, with 81 percent of that space preleased.

What’s the secret to the recovery? Well, job growth helps. Canada’s unemployment rate in August was 7.3 percent, having added 223,000 private-sector jobs in the past year.

Changing Made-Up Minds

Research has shown that when people make mistakes, they try to justify them — understandable human reaction — but can such behavior affect the market when those people making mistakes are influential participants? Yes, say two business professors who looked at the behavior of more than 6,200 stock analysts over an 18-year period from 1990 to 2008. Analysts who made extreme forecasts — either above or below the market consensus — tended to dig in their heels and justify their extreme views, even after being proved wrong. Their attachment to their original views led them to disregard companies’ new earnings forecasts when revising their yearly forecasts and caused them to remain less accurate in succeeding forecasts.

This “escalation of bias” helped contribute to the financial crisis of 2008, says John Beshears, one of the researchers and an assistant professor of finance at the Stanford Graduate School of Business. Many lenders and investors refused to recognize signs of a weakening real estate market until it was too late. Beshears believes this research could also shed light on how credit analysts and loan officers view the performance of financial assets. “Psychological factors like this play an important role in how people form expectations about the future,” he says.

Briefly Noted

Hospitality — Lodging lenders say that their two biggest considerations in loan requests are cash flow and location, according to the sixth annual International Lodging Finance Council survey. Lenders perceive urban gateways as the lowest risk while resort locales cause the most concern.

Industrial — Detroit was the seventh best-performing logistics market in the nation, absorbing 1.4 msf during the first half of 2011, according to Grubb & Ellis. Pittsburgh was the worst-performing market, with its vacancy rate going from 7.8 percent to 13.7 percent in six months.

Multifamily — The national vacancy rate declined to 5.1 percent in 3Q11, just 30 basis points above the historical norm, according to CBRE. YOY, 3Q11 apartment vacancy rates declined in 53 out of 60 markets and 18 markets had vacancy rates at 4 percent or below.

Office — Overall, 3Q11 leasing activity was down 26 percent from 3Q10, a sign of waning business confidence, according to Jones Lang LaSalle. Despite that, the market has absorbed 75 percent more space YOY, a total of 24.5 msf, the majority of it in the energy and high-tech sectors of Texas and the West Coast.

Retail — Big boxes increasingly are becoming small boxes as Best Buy, Staples, and Office Depot look to shed square footage, according to Chain Store Age. In addition, retailers J.C. Penney, Old Navy, and Sears are downsizing, with Sears actively leasing out space to other retailers such as Forever 21 and Whole Foods.

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