Market Data

Market Trends(34)

Projected U.S. Vacancy Rates

Sector
2008 (actual %)
2009 (%)
2010 (%)
2011 (%)

Apartment
6.6
7.4
7.0
5.9

Industrial
11.1
11.8
11.5
10.9

Office
13.9
17.8
18.3
16.5

Retail
9.0
10.5
9.5
8.0

Source: RREEF Research

Briefly Noted

HOSPITALITY — Phoenix (29 percent), Detroit (23 percent), New York (23 percent), Atlanta (22 percent), and Miami (20 percent) experienced the sharpest 1Q09 U.S. major market declines in revenue per available room, according to Smith Travel Research. In addition these cities all have significant new supply coming on line this year.

INDUSTRIAL — Investment activity for 1Q09 was a lowly 8.5 million sf, one-fifth of industrial sales activity in 1Q08, according to Cushman & Wakefield.

MULTIFAMILY — The strongest net effective rent gains in history may occur between 2011 and 2015 as 75 million echo boomers finally can afford to strike out on their own, says RREEF Research. This pent-up demand along with a below-average supply, limited by financing constraints and fewer construction starts in 2010 and 2011, will boost rents quickly.

OFFICE — Two high-profile office tower foreclosures just one month apart seem to indicate that values for U.S. skyscrapers have dropped at least 25 percent, experts say. Holding a $130 million mezzanine loan on 1330 Avenue of the Americas in New York City, Otera Capital Corp. paid owner Harry Macklowe $100,000 for it and assumed its $240 million debt. A month earlier, Boston’s Hancock Tower was sold for $660 million, about half its 2006 purchase price.

RETAIL — Markets with the highest vacancy rates at the close of 1Q09 were Detroit (10.7 percent), Phoenix (10.3 percent), Columbus, Ohio, (10.3 percent), Kansas City, Mo. (10.1 percent), and Indianapolis (10.1 percent), according to CoStar Group.

Europeans Gamble at Home
Globally, at gaming hotels, the odds are against the house in this economy. However, U.S. casino hotels are losing at much higher stakes than European casino hotels, according to Smith Travel Research Global. In 4Q08, at U.S gaming hotels, occupancy, average daily rates, and revenue per available room plunged dramatically, with December 2008 RevPAR showing a 30 percent decline from the previous year. However, during the same period, European gaming hotels saw ADR and RevPAR post large increases in spite of significant occupancy declines: Both metrics increased 20 percent from November to December 2008. With Monte Carlo significantly closer than Las Vegas, many Europeans are choosing to gamble in their own backyards. As a result, U.S. casino hotel revenue is forecast to decline 8.4 percent by year-end, according to IBISWorld.

Worth Listening To
“First-time e-commerce shoppers are growing 6 percent per year — compared with the bricks-and-mortar channel, which is experiencing a decline. A lot of companies … are increasing investments in the digital world because the e-commerce channel is more efficient and more measurable.”
— Tracy Mullin, president and CEO, National Retail Federation

2009’s Fastest-Growing Franchises

Company
Description
Start-up costs (in thousands)

Jan-Pro International
Commercial cleaning
$3.3 – $54.3

Subway
Fast food
$78.6 – $238.3

Instant Tax Service
Retail tax preparation
$39.0 – $89.0

Stratus Building Solutions
Commercial cleaning
$3.5 – $57.8

Snap Fitness
24-hour fitness center
$71.1 – $241.9

Source: Entrepreneur.com

CBD Office Markets at Risk
Construction represents more than 7 percent of current stock

Market

Current stock (millions)

Under construction (millions of sf)

Q09 net absorption (% of stock)

Atlanta
46.5
3.2
-0.10

Charlotte, N.C.
17. 1
3.2
-1.07

Miami
11.5
1.8
-0.74

Seattle
56.6
4.9
-1.10

Washington, D.C.
105.2
8.5
-0.17

Source: Jones Lang LaSalle

1Q09 Office Review
The first three months of 2009 were not kind to the U.S. office market as fundamentals deteriorated sharply, according to Grubb & Ellis. Not surprisingly, Manhattan registered the largest negative absorption at -2.8 million sf, as the decimated Wall Street ranks cleared out their desks. But other markets expected to hold up followed right behind: Los Angeles (-2.5 million), Houston (-929,000), Seattle (-740,000), and Washington, D.C. (-723,000). The national vacancy stood at 15.6 percent at the end of 1Q09. Of the major markets tracked, only three New York City submarkets posted single-digit rates; eight markets posted rates above 20 percent, including Phoenix at 25 percent.


Top 5 Global Real Estate Business Risks
(2008 ranking in brackets)

1.Continued uncertainty and credit crunch impact (new)

2.Global economic and market fluctuations (7)

3.Impact of aging or inadequate infrastructure (6)

4.Global war for talent (14)

5.Changing demographics (13)

Source: Ernst & Young

National Retail Real Estate Snapshot, 1Q09

Metric1Q09

Average vacancy
7.2%

Average asking rent
$17.51 psf

New stock deliveries
18.25 million sf

Under construction
60.25 million sf

Net absorption
-23.77 million sf

Source: CoStar

Smart Reads
What’s it going to take to turn this market around? Four things, says real estate guru Anthony Downs in Real Estate and the Financial Crisis: Time, stronger leasing demand, favorable comparison of real estate to other asset classes, and lower property prices. There is no quick fix: “Only in 2010 will a return [to the easy availability of financial credit] be possible, though certainly not assured,” he says.

Is all of this mess really former Fed czar Alan Greenspan’s fault? Well not completely. “It’s not that we put our faith in the wrong people, but that we embraced the wrong paradigm,” says veteran Wall Street economist Robert J. Barbera in The Cost of Capitalism. While all for the free-market economy, he finds folly in the thought that markets are self-regulating. After analyzing the causes of our current state, he calls for a balance between risk-taking and regulation.

National Stats 1Q09

Sector
Transaction volume (in millions $)4/1/08–3/31/09
East average $psf
South average $psf
Midwest average $psf
West average $psf

Office
52.8
327
165
141
228

Industrial
23.8
65
54
57
109

Retail
26.1
132
138
118
173

Multifamily ($ per unit)
29.4
123,699
61,624
61,541
113,139

Hospitality ($ per unit)
8.7
125,599
115,494
91,650
184,571

Source: Real Estate Research Corp.

Squeeze on Specialty Store Space
Four niche retailers were found to have the largest number of stores in poorly performing shopping malls, according to a UBS report. After reviewing the bottom 300 malls larger than 500,000 sf, Christopher & Banks Corp. had the greatest exposure at 24 percent, followed by Aéropostale with 16 percent, and Pacific Sunwear and American Eagle Outfitters both with 15 percent. Pennsylvania has the greatest number of units in the bottom 300 malls, followed by New York, Ohio, and Indiana.

Development Goes to the Dogs in Dallas
During the dog days of August this year, Dallas dogs and their owners can beat the heat at Unleashed, the world’s first indoor dog park. This $10 million pup paradise boasts 25,000 sf of K9 Grass, an artificial turf with a proprietary flushing and draining system, along with a doggy spa and day care, pet supply shop, and soon-to-come café, all built on 2.5 acres with an outdoor facility as well as a doggy waterpark under construction. For a $7.50 all-day pass, this canine casbah is more stringent than most human tot lots: Owners must present Fido’s vaccination papers to register on the first visit, and sorry, no pit bulls allowed. The owners have expansion plans in mind, but why build from scratch? Couldn’t you see one of these in an empty Circuit City big box?

Worth Remembering
“The world is suffering. But this is exactly the time to do exciting things. It’s not the time to hide our heads. It’s when we have to use our imaginations to try new materials, new ideas. Not just add gold and chandeliers!”
— Daniel Libeskind, architect, now designing a shopping center in the financially troubled $8.6 billion MGM Mirage City Center in Las Vegas


REIT Snapshot

Property sector
Total return 2008 (%)
Total return March 2009 (%)
Total return
YTD 1Q09 (%)

Industrial
-67.47
14.61
-41.89

Office
-41.07
-1.07
-33.06

Retail
-48.36
0.75
-36.57

Apartments
-25.13
9.54
-30.62

Lodging
-59.67
10.30
-38.21

Source: FTSE Group, NAREIT

Pension Fund Hears the Sound of Music — and Buys It
It appears that musicals, not real estate, are a few of the favorite things of pension funds these days. Through its music publishing investment fund Imagem, Dutch pension fund ABP purchased the rights to all Rodgers & Hammerstein songs and musicals as well as the Rodgers & Hammerstein Organization, a licensing agent that represents more than 12,000 songs, 900 concert works, 200 writers, and 100 musicals, many of them American classics.

Where Are the Jobs?
Asset management is the place for shopping center executives right now, says David Henry, vice chair, president, and CEO of Kimco Realty Corp. talking to International Council of Shopping Centers members. “There are a number of disgruntled lenders-owners looking for other firms to take over management of assets. Asset managers are in big demand.” In addition, loan servicers and leasing pros, along with property managers, workout specialists, and those with institutional backgrounds will be in high demand. “Securitized lenders will be staffing up with thousands of workout activities coming up. Network, be persistent, and stay in the game, because there is going to be an enormous fortune to be made on the other side of this recession.”

What’s It Listed At?

A look at …
Industrial properties
Price

Corporate Lakes, Lawrenceville, Ga.
99,908-sf warehouse on 17.7 acres, built in 1988
$6,500,000
ID# 15600874, Bryant Commercial Real Estate Partners

Paramount Self Storage, Stanhope, N.J.
52,000-sf self-storage facility on 6 acres, built in 2004, 80% occupied
$5,800,000
ID# 16088061, LC Realty

PEI Genesis Building, South Bend, Ind.
64,500-sf production assembly and warehouse facility on 4.5 acres
$2,600,000
ID# 14918189, CB Richard Ellis

IMC Industrial Park, Rocklin, Calif.
Four 2,730-sf industrial condos built in 2007
$2, 320,500
ID# 16099123, CB Richard Ellis

Source: CCIMNet/LoopNet

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