Market Data

Market Trends Online(7)

April 2006

What’s Hot: Office
Office transactions totaled $99.7 billion last year, a 34 percent increase over 2004. Office’s allure should continue this year as the biggest rent and occupancy increases are still ahead.
Supply and Demand:New product is adding just a little more than 1 percent to existing supply; conversions and redevelopment are further reducing supply.
Best Investment Bets: Tech markets such as Seattle, Austin, Texas, Denver, and San Jose, Calif., as well as high-growth Phoenix and Orlando, Fla.
Good Bet for Growth:Medical office; during the next four years the 55-plus age demographic will increase 14.0 percent compared with a general population increase of 4.5 percent.
Highest expected 2006 office employment growth:Austin, Texas, Fort Lauderdale, Fla., San Antonio, Texas, Tampa, Fla., Phoenix, and Tucson, Ariz.
Sources: NAR Commercial Real Estate Outlook; Marcus & Millchap National Office Report


Windrose Medical Properties Trust recently agreed to purchase three Texas medical properties from Medistar Corp. totaling 231,530 sf for $81.3 million. The deal included two Houston properties and this integrated medical plaza in San Antonio.

CRE Returns Hit All-Time High
Annual investment returns for U.S. commercial real estate hit an all-time high of 34 percent in 2005 according to the MIT Center for Real Estate’s new Transaction-Based Index. The index is based on transaction data from the National Council of Real Estate Investment Fiduciaries property database of nearly 5,000 properties nationwide. The previous highest return was 23 percent in 1997 and over the 21-year period indexed, the average annual return was around 10 percent. The four major property types all showed high returns for last year, ranging from 29 percent to 40 percent. The current index covers 1984 to 2005 and will be updated quarterly by MIT’s Commercial Real Estate Data Laboratory. To view the set of 15 indices, log on to http://web.mit.edu/cre/research/credl/tbi.html.

How Commercial Real Estate Stacks Up

Index 2005 return
MIT’s commercial real estate Transactions-Based Index 34%
Morgan-Stanley EAFE International Stock Index 14%
NAREIT Equity REIT Index 12.2%
Ibbotson Small Stocks Index 5%-6%
Lehman Bros. Govt./Corp. Bond Index 5%-6%
Standard & Poor’s 500 4.9%

New Measures Cropping Up
The acceptance of commercial real estate as an asset class has prompted professional organizations to develop measurement indexes. The National Association of Realtors released its new Commercial Leading Indicator for Brokerage Activity in February. This quarterly survey relies on 13 economic variables including industrial production; real estate investment trust price index; National Council of Real Estate Investment Fiduciaries’ total return; personal income minus transfer payments; jobs in financial activities, professional business service, temporary help, retail trade, and wholesale trade; initial unemployment insurance claims; manufacturers’ durable goods shipment; wholesale merchant sales; and retail sales and food service. The inaugural index predicted a continuing broad recovery in commercial real estate through the end of this year.

The Society of Industrial and Office Realtors also has released its Commercial Real Estate Index, which indicated that industrial markets are ahead of office markets in recovery. This is a diffusion index based on a survey of SIOR members in 114 markets who were asked about industrial and office leasing, asking rents, vacancy rates, subleasing, concessions, development, site acquisition, pricing levels, and the local economy.

Market Outlook -- 1Q06

Sector Office Industrial Retail
Vacancy 4Q05 13.6% 9.6% 8%

Vacancy 4Q06 (projected)


11% 8% 7.8%

2006 rent growth (projected)


5% 3.8% --

2006 lowest vacancies (projected)


Ventura and Orange counties, and Riverside, Calif.; New York; Miami W. Palm Beach, Fla.; Las Vegas; Los Angeles, Riverside, and Orange County, Calif. San Francisco, Las Vegas, San Diego, Seattle, W. Palm Beach, Fla

Source: NAR Commercial Real Estate Outlook

Being Spaces -- New Property Type?
While New York leads the market for 2006 office investment, some of its other trends may bear watching too. For instance, the third-room concept is cropping up in various neighborhoods. Condominium and apartment dwellers with no room for a home office use these commercial living room spaces for writing, reading, and meeting friends and associates. New York’s Paragraph and the Village Quill are members-only writing centers. The 2,500-sf Paragraph (www.paragraphny.com/space) provides a loft space with 38 work stations, a living room, and a kitchenette area. The Village Quill (www.villagequill.com/) is 1,700-sf space with 20 work stations equipped with Internet and wireless connections. Monthly access fees range from $80 to $132.

Two Rooms (www.tworooms.net/Home.aspx) combines incubator office space with childcare for freelancers and home-based workers. This 2,200-sf communal office provides wireless Internet access, computers for rent, basic office equipment such as a fax machine, copier, and scanner, and a receptionist for package delivery and other business duties. Half of the space is devoted to childcare and a kitchen area. The facility operates as a nonprofit organization and offers a variety of membership-level as well as drop-in fees.



Paragraph and the Village Quill are two examples of the “third room” space trend that offers shared office and living room space for New York City apartment and condominium dwellers.

Can You Bank on It?
While bank branches gobble up retail real estate in almost every imaginable neighborhood, E-Loan co-founder Chris Larsen is moving in the opposite direction: creating the first U.S. people-to-people lending marketplace. Prosper (www.prosper.com) is a Web-based lending environment modeled after eBay. Would-be lenders bid on loans and can base their decisions on credit scores and default history or borrowers’ own personal stories, which include the amount they need, why they need it, and the interest rate they are willing to pay. Recent borrowers include a developer looking for $15,000 toward converting a Victorian nursing home into 21 condominuims, an online ticket broker looking to fund season-ticket purchases, and a cat breeder who needs $2,200 to extend her line of Himalayan cats. While Wachovia and Washington Mutual probably aren’t worried about the competition, Larsen has lined up some fairly impressive backers, including Fidelity Ventures Benchmark Capital.
Source: International Council of Shopping Centers

Ready for the Big League?
Can your town support a major league sports team? Check out the ratings of 176 metropolitan areas and the amount of personal income available compared with the amount it takes to support a professional team.

For more information on the original ratings, go to http://www.bizjournals.com/specials/2006/0213/major_metros_chart.html?hbx=slide_sport_article.

Coming to a Strip Mall Near You
The fast-casual restaurant marketplace is overflowing with concepts and rollouts, ready to cash in on a projected $70 billion market this year, according to Fast Casual magazine. More than 300 brands are feeding the frenzy for dining out and curbside takeout, the hottest fast-casual trend. Takeout sales are predicted to reach $126 billion by 2007, which means fast-casual dining establishments will be looking for outpads and endcaps rather than inline space.

Hot concepts on the Fast Casual movers-and-shakers list include anything from Raving Brands in Atlanta, which markets Moe’s Southwest Grill, Boneheads, Doc Green’s Gourmet Salads, Shane’s Ribshack, and Mama Fu’s Asian House among others. Buffalo Wild Wings Grill & Bar also makes the list as the one of the top 10 fastest-growing restaurant chains, with approximately 200 locations. Camille’s Café also made the list, with 80 sites in 35 states and 800 in development. And if your town doesn’t have Mexican-themed fast-casual dining, someone’s not doing his job -- 11 brands are listed in the top 100 list, more than any other type of food.


Camille’s Café is one of the many growing chains in the fast-casual dining market.

Super Sites Come Out of Hiding
Given the competition from residential and retail development, industrial site specialists are having a difficult time finding large tracts of land for industrial development. Visit Site Selection Online to view a chart listing the top 50 U.S. sites as well as who to contact for more information. http://www.siteselection.com/issues/2006/jan/p65/superSitesChart.htm

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