Market Data

Market Trends

Briefly Noted

Hospitality — Hampered by lack of construction financing, new hotel supply is projected at 1.7 percent for 2010 and 1.3 percent annually for 2011 and 2012, according to Lodging Econometrics. The modest increases will aid hospitality’s recovery, allowing rents to rise as demand increases with the improving economy.

Industrial — Net demand for warehouse and flex space registered at 6 million sf in 2Q10, the first increase since 4Q08, says Cassidy Turley. Thirty-five of 67 major metros registered positive demand, compared with only 11 markets in 1Q10.

Multifamily — The number of occupied apartments increased by 215,000 units in the first half of 2010, almost double the increase of 110,000 units for all of 2009, according to MPF Research.

Office — Off-campus urgent care and community clinics will represent a larger portion of medical office development in the coming decade as hospitals look for more cost-effective ways to handle routine patient care, according to Cushman & Wakefield’s 2010 Medical Office Building Investor Survey.

Retail — Excluding mega stores such as Wal-Mart and Target, retailers plan to open 65,291 stores over the next 24 months, according to RBC Capital Markets and Retail Lease Trac data. Quiznos, Dollar General, Anytime Fitness, and Five Guys Famous Burgers plan to add the most new outlets.

Holding the Line on Expenses

Total operating expenses for all U.S. private-sector office buildings declined by a little more than 1 percent in 2009, according to Building Owners and Managers Association International’s 2010 Experience Exchange Report. Overall the year was a wash, as rental income was up just 1 percent as well, although downtown office properties saw an increase of 2.5 percent in rents. The two largest expenses for office owners were taxes (35 percent) and utilities (19 percent).

Worth Quoting

“Loan to value is no longer a driving force in underwriting. … Lenders are underwriting against debt service coverage ratio and debt yield. Debt yield is the ratio of verifiable net operating income divided by the principal balance. Lenders want a debt yield number between 10 percent and 12 percent.”
-- Jack M. Cohen, CEO of Cohen Financial, in Knowledge Leader, Summer 2010

Top 5 Sales States

In 1Q10, commercial real estate sales volume increased in 13 states compared to 1Q09, according to the National Association of Realtors. The following states saw the largest increases:

Industrial Snapshot, 2Q10

Regional net absorption (in sf)
South: 5.3 million
West: 1.4 million
Midwest: 32,000
Northeast: -1.1 million

National sales
Total YTD: $5 billion, up 28% from 2Q09
Warehouse: 60% of deals, with cap rates falling from 8.7% in 1Q10 to 7.5%
Flex/R&D: 40% of deals, with cap rates rising from 7.7% in 1Q10 to 8.7%

Source: Cassidy Turley

Hotel Values to Rebound

While U.S. hotel industry values per room will be down 2.2 percent overall in 2010, next year they should rebound by 7.5 percent, with increases in all sectors, particularly economy.

More Tax Bang for the Buck

A recent study in Sarasota County, Fla., reveals that an urban mixed-use development on less than one acre in downtown Sarasota produces more tax revenue per acre than any of the county’s retail projects, according to a Citiwire.net report. When Sarasota County Director of Smart Growth Peter Katz analyzed the county’s property tax revenue by acre, he found that big-box development returned around $8,400 per acre, only $200 more than a single-family home. A high-end regional mall returned $22,000 per acre. However, outpacing even the regional mall was an urban mixed-use development: A 14- to 16-story mixed-use project on less than an acre in downtown Sarasota contributed tax revenues of $800,000 a year per acre. A mid-rise development produced $560,000 per acre and low-rise development netted $70,000 per acre.

In addition, in terms of infrastructure costs, the study showed the payback time for a mixed-use urban condo development was three years, while the payback for a residential component for a suburban development near a highway interchange was 42 years. While such comparisons don’t tell the whole story, it is a strong argument for local governments to consider downtown mixed-use projects.

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