Market Data

Market Trends Online(13)

Capitalization Rate Forecast

by percentage of properties

Property Type 2007 Average Cap Rate % Decline % Increase % Stable
Suburban multifamily 6.34 2.6 30.7 66.7
Urban multifamily 6.53 3.6 27.3 69.1
Neighborhood strip center 7.21 3.5 35.1 61.4
Regional mall 6.93 1.8 34.5 63.6
CBD office 7.46 4.4 32.5 63.2
Suburban office 7.42 1.8 28.1 70.2
Bulk warehouse 7.53 5.5 29.1 65.5
R&D 7.92 3.6 37.5 58.9

Source: Integra Realty Resources

Manufacturers Move Out

The search for large parcels of industrial-zoned land has pushed beyond Nashville, Tenn.’s home of Davidson County as new and expanding manufacturing companies settle in middle Tennessee, according to the Nashville Business Journal. Outlying counties in Nashville’s metropolitan statistical area are attracting 56 percent of manufacturing relocations and expansions, while Davidson County attracts 44 percent. U.S. companies such as Al’s Garden Art and Kitty Hawk Furniture are relocating from California and Florida to more centrally located Tennessee, and international firms such as Sekisui Plastics, based in Japan, built a $6 million auto plastics plant in nearby Mt. Pleasant, Tenn.

Two Chicago Icons Sold

Two landmark Chicago buildings recently traded hands, according to Jones Lang LaSalle. The historic Rookery Building was purchased by Metzler North America on behalf of a German family for $73 million from Broadway Real Estate Partners, which purchased the property in 2006 for $56 million. Listed on the National Register of Historic Landmarks, the 1885 Rookery was designed by Daniel Burnham and John Root. In 1905, Frank Lloyd Wright remodeled the glass-enclosed atrium. The 12-story class A building was about 97 percent occupied at the time of sale.

Built by Skidmore, Owings, and Merrill in 1957 and hailed as the precursor to the modern office building, the 19-story, class B Inland Steel building was sold to Capital Properties for $56 million by its owners, which included architect Frank Gehry. Gehry, along with Alfred D’Ancona and Harvey Camins, bought the property in 2005 for $44.5 million. One of the first buildings to use a steel and glass curtain wall, Inland has column-free floors of approximately 12,000 sf. It also was the first fully air-conditioned office building as well as the first to have an underground parking garage.

Ground Broken on Coral Gables Mixed-Use

Work has started on the largest development in Coral Gables, Fla.’s history. Old Spanish Village is a 7-acre mixed-use development that will include townhomes, condominiums, and a 16-story office building with first-floor retail. Developers originally slated the tower as luxury condos but changed it to office space when the residential market slowed. One tenant already has committed to 50,000 sf of office space, although the project will not deliver until 2010.

Secondary Market Snapshot: Suburban Office Forecast

Market Area Invent-
ory SF
SF Under Construct-
ion,2008-2011
SF Annual Net Absorp-
tion, 2008-10
% Value change, 2004-2007 % Value change 2007-2009
Austin 31,782,097 5,250,000 1,166,667 22 2
Boston 111,700,000 4,150,000 1,000,000 30 20
Charlotte 27,871,859 3,178,585 800,000 5 3
Indianapolis 19,980,000 1,035,000 589,333 7 5
Sacramento 38,800,000 2,850,000 1,000,000 14 0
Seattle 53,702,591 4,724,426 1,333,333 39 25

Source: Integra Realty Resources

National Retail Stats

  • Rental rates down almost 5 percent from 4Q06.
  • In the past year, 117.5 million sf of retail space was built in the U.S.
  • As of 3Q07, total U.S. retail inventory was around 7 billion sf.
  • Only $2.2 million of retail transactions occurred in October 2007, a 50 percent drop from 2006.
  • Offshore investors acquired $14 billion of U.S. retail properties in the first 10 months of 2007, compared with $7.1 billion acquired in all of 2006. Anchored strip centers account for 80 percent of foreign retail investments.

Source: Jones Lang LaSalle

Industrial Hot Spots

Market 2007 Net Absorption (in millions) 2007 Vacancy Rate (%)
Inland Empire, CA 17.5 8.0
Dallas-Fort Worth 16.1 9.1
Houston 9.4 6.3
Chicago 8.6 9.5
Seattle 6.0 5.6
Portland, OR 4.0 7.1
Salt Lake City 5.3 3.3
San Jose, CA 5.3 9.9
Tampa-St. Petersburg,
FL
2.8 6.1

Source: CoStar

Top Industrial Owners

Portfolio value as of 1/1/07
1. ProLogis $15.5 billion
2. RREEF $10.6 billion
3. CB Richard Ellis $7.5 billion
4. Principal Real Estate Investors $5.1 billion
5. GE Real Estate $4.7 billion

Source: Commercial Property News

Office Leasing Forecast

Region 2008 Absorption/Vacancy (%) 2009 Absorption/Vacancy (%)
East 14,115,000/14.3 24,169,000/14.1
Midwest 7,896,000/17.8 11,581,000/17.7
South 18,827,000/16.7 22,446,000/16.7
West 18,837,000/13.7 26,433,000/13.6
National 59,675,000/15.3 84,629,000/15.2

Source: PPR

Who Bought What When

2007 office investors by percentage of market purchased

Investor Group Jan. – Aug. 2007 Sept. – Nov. 2007
Equity fund 30% 12%
Foreign 8% 17%
Institutional 18% 22%
Private in-state 16% 20%
Private out-of-state 9% 12%
Public REIT 13% 3%
Syndicator 3% 10%
User/other 3% 4%

Source: Real Capital Analytics

Worth Repeating

“The retail market became more challenging through 2007 largely due to the slumping housing market. This has hit the retail market in two different ways. The first is in retail sales. With less disposable income available, consumers are spending less.

The second way this affects retail is in regard to franchises. Many franchise owners purchase their first franchise by borrowing against their current assets, primarily their home. With the housing slump in effect, there are fewer people willing and/or able to take out an additional mortgage to fund these ventures. Thus, it affects franchisors, and in many cases, smaller strip center space.”

- Colliers Turley Martin Tucker, Minneapolis-St.Paul 2008 Market Research

Cincinnati Retail Market Moving Along

Despite the general economy, the retail investment market in Cincinnati is healthy, according to Collier Turley Martin Tucker’s 2008 Cincinnati Market Research report. Although transaction volume was slightly below the previous year, some of that is due to the lack of quality product available as East and West Coast investors have flocked to Midwest cities looking for better value and higher cap rates. Major national retailers such as Ikea, Crate & Barrel, and Nordstrom are locating in the area, and Cincinnati’s downtown revival continues with the approval of the Banks Project, a 2.5 million-sf mixed-use project that will include 200,000 sf to 400,000 sf of retail space. The largest retail transaction of 2007 was the Rookwood portfolio, which included an office building and two lifestyle centers that sold for $127 million and $52 million respectively.

Multifamily Demand Grows in Portland

Condominium projects are converting back to rentals to meet apartment demand for in Portland, Ore., according to a 4Q07 report from Norris, Beggs & Simpson. Positive job growth coupled with tighter credit standards for home ownership has increased demands and rents for downtown units. Average rents have increased $20 per month over the past year, and average vacancy for the city is 3.3 percent. In addition, finding affordable and available land in close-in markets has hindered new development. In 4Q07 Trammel Crow has broke ground on a 188-unit infill project with 9,000 sf of retail.

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