Market Data

Regional Outlook(8)

Markets to Watch

  • Minneapolis-St.Paul — Interstate 35’s bridge collapse last August has had no noticeable effect on the area’s commercial real estate market, according to Colliers Turley Martin Tucker, but an 11.5 percent industrial vacancy rate — eighth highest in 55 markets nationwide — may be traceable to slowing job growth: Minnesota gained only 100 industrial jobs last August.
  • Dallas — Billingsley Co. sold a group of seven low-rise office buildings in North Dallas for $130 million to Argus Realty Investors. Located in the International Business Park between Carrollton and Plano, Texas, the 90-percent leased assets have 42 tenants of varying sizes, according to the Dallas Business Journal.
  • New York — More than 30 projects are in various development stages in and around the 26-acre rezoned Hudson Rail Yards on New York’s far west side, which could add more than 16 million sf of office space as well as substantial residential, retail, and hospitality, according to the RealDeal.
  • Las Vegas — Office vacancies rose to 12.4 percent as more normal absorption encountered 3 million sf of new space. “The modest market imbalance is a function of a developer-friendly environment present two years ago. … Additional increases in vacancies are likely … followed by a stabilized supply-demand balance post-2008,” says Applied Analysis Principal Brian Gordon.
  • Washington, D.C. — A 3Q07 leasing slowdown, reduced government spending on contractors, and sluggish job growth outlook for the near term has office experts wondering who’s going to occupy the 12.2 million sf of space now under construction in the metropolitan area: Less than 30 percent is preleased. On the investment side, all-cash bargain hunters may find some good deals and a noticeable lack of competition, according to GVA Advantis.
East

Boston High-Rise Market Tightens

An influx of large financial-services tenants has caused a run on Boston’s premium high-rise office space. At the end of 3Q07, only six blocks containing 100,000 sf or more of class A space were available, with only three blocks in high-rise towers. However, 14 companies are seeking class A space blocks ranging from 100,000 sf to 250,000 sf, according to Jones Lang LaSalle Real Estate Market Intelligence Monthly.

Boston High-Rise Market, 3Q07

Class A Towers Average Asking Rent (PSF) Vacancy Rate
Financial District $64.30 4.9%
Back Bay $63.45 2.5%
Overall Boston $53.07 7.1%

Source: Jones Lang LaSalle

Southeast

Distribution Space Develops in Tampa

Tampa, Fla.’s 3.1 percent direct vacancy rate for distribution space has attracted the attention of national developers, according to a GVA Advantis midyear report. As its first outing in the Tampa market, Atlanta-based Industrial Developments International is building the 58-acre master-planned Madison Industrial Park that eventually will hold 1 million sf of speculative distribution space in five buildings. The first two buildings should deliver in 1Q08. IDI also has 900,000 sf of space planned for a 69-acre site at 301 Business Center. In addition, Duke Realty has acquired 120 acres along Interstate 75 for 1.3 million sf of distribution space in the next five years, and further south, Ryan Cos. is opening a 90,000-sf distribution center by year-end in the 380-acre South Shore Corporate Park.

Southeast

Big Multifamily Deal in Charlotte’s Web

Equity Residential Properties Trust sold the majority of its Charlotte, N.C., multifamily portfolio to San Francisco-based McDowell Properties for $205 million, one of the area’s largest apartment transactions of this decade, according to the San Francisco Business Times. The eight properties comprising 2,571 rental units are located throughout Mecklenburg County, N.C.; most of them are larger than 300 units and were built between the mid-1980s and mid-1990s. Equity still owns three multifamily properties in the Charlotte area.

East

TOD Planned for Suburban D.C.

A Harris Teeter grocery store will occupy the first floor of the 312-unit luxury multifamily Wentworth House, the first building under construction in a 32-acre transit-oriented development in North Bethesda, Md. Adjacent to the White Flint Metrorail Station, the $900 million mixed-use project will contain 930,000 sf of office, 200,000 sf of retail, 1,275 apartments, and a 320-room hotel.

Midwest

CBL Takes Control of St. Louis Malls

In a transaction valued at more than $1 billion with a weighted average cap rate of 6.2 percent, CBL & Associates took control of four St. Louis regional malls from Westfield Group. CBL owns approximately 132 retail properties including 80 regional malls nationwide.

National Stats

Overall Capitalization Rates

3Q07

Property Sector Average Cap Rate (%) Annual Change (Basis Points)
Multifamily 5.76 -22
Industrial warehouse 6.53 -50
CBD office 6.68 -39
Power center 7.00 -32
Strip center 7.20 -16
Suburban office 7.24 -51
Economy/limited- service hospitality 9.58 -25

Source: Korpacz Real Estate Investor Survey

Midwest

I’m Going to Kansas City … to Gamble

The first state-owned Las Vegas-style resort casino is coming to Kansas City, Kan., after voters approved its development under the state’s expanded Lottery Act. Five development teams submitted six proposals for various locations. City and county officials had until Dec. 31, 2007, to recommend one proposal to the state’s lottery commission.

Midwest

Chicago Increases Industrial Arsenal

ProLogis acquired 184 acres of the former Joliet Arsenal site 60 miles southwest of Chicago where it plans to build up to 10 million sf of industrial space. Located in a state enterprise zone, the first 3.2 million-sf distribution park will offer future tenants reduced property taxes, sales tax exemptions, and tax credits for job creation. The center should open by midyear.

Midwest

Indianapolis Ringed by Retail

While downtown Indianapolis boasts several new restaurants and retail shops, this sample of suburban retail development shows the action is spread throughout this growing market.

North: Set to open this spring, the 900,000-sf Hamilton Town Center is being developed by Simon Property Group and Gershman Brown & Associates.

South: In Greenwood, Ind., outdoors outfitter Cabela’s is building a 125,000-sf store, 164-room hunting lodge hotel, 30,000-sf indoor water park, and 74 acres of additional retail development.

East: McCord Square in McCordsville, Ind., is a 77-acre mixed-use development that is targeting a mix of big-box retail, medical office, general office, and small retail tenants.

West: Premier Properties USA’s 600,000-sf Metropolis, a regional town center in Plainfield, Ind., is adding a 400,000-sf second phase, which may include a 136-room Aloft hotel.

Source: Colliers Turley Martin Tucker

Southwest

Houston’s Bank Buildings Change Hands

Hines Interests sold two well-known Houston CBD properties in 3Q07. The iconic Bank of America Center was sold for a record $370 million to Novati Group and General Electric Pension Trust. Hines developed the 56-story, 1.3 million-sf skyscraper in 1983, designed by architects Philip Johnson and John Burgee. Hines also sold the former Bank One office building at 919 Milam St., which it acquired only two years ago. Hines converted the first five floors of the 25-story building into a parking garage, reducing the square footage from 735,000 to 542,000. Tranwestern Investment Co. bought the building for $100.5 million or $184 psf.

Houston’s office market posted its highest absorption in the past five years, with 2.85 million sf at midyear 2007. That surpasses the 2.21 million sf peak of 4Q06. Construction of new office space increased dramatically in 2Q07, up more than 3 million from 1Q07 at 4.3 million sf.

National Stats

2008 Office Property Recommendations

Metro Buy (%) Hold (%) Sell (%)
Seattle 56.3 25.0 18.8
Boston 37.9 33.3 28.8
Miami 31.8 37.9 30.3
Phoenix 19.1 36.8 44.1
Atlanta 16.0 48.0 36.0

Source: Emerging Trends in Real Estate 2008

Southwest

Austin Goes Upscale

Global Hyatt Corp.’s new luxury-brand hotel Andaz will anchor the East Avenue mixed-use development in Austin, Texas. The 210-room hotel will open in 2010, along with 150 condo units in an adjoining building. This will be the first Andaz built from the ground up and only the third U.S. location: Other properties in London and New York are conversions. The East Avenues Investment Group is redeveloping the 23-acre site of the former Concordia University near downtown Austin into a $750 million, 2.75 million-sf urban community with 1,450 residential units, 600,000 sf of office space, and 325,000 sf of retail space along with the hotel. Construction of two class A office buildings will begin this year with delivery in 2009.

Andaz Hotel

International Beat

Hospitality in Mexico

With more than 21 million visitors a year, Latin America’s highest per capita gross national income, and a strong investment grade and low risk assessment, Mexico is providing attractive returns to hospitality investors, both local and foreign. As a whole, Mexico’s hospitality industry accounts for 8 percent of its gross national product and is the third-largest producer of foreign income — $12.1 billion in 2006, which is predicted to increase to $20 billion in the next six years, according to Mexico’s secretary of tourism. Mexico ranks third worldwide in the estimated opening of chain hotels from 2006 to 2011, second only to the U.S. and China, according to TravelMole.com. Buying property in Mexico is easier and safer, although purchase of coastal and border property still must be done through trusts. However, U.S. title insurance companies such as First American Title Corp., Stewart Title Insurance Co., and Chicago Title Co., now provide documentation of ownership and act as escrow agents.

While traditional tourist locations such as Acapulco, Cancun, and Puerto Vallarta continue to grow, Puerto Peñasco, Sonora, and Loreto, Baja Calif., on either side of the Sea of Cortez, have received large investment flows in recent months. Two of the largest developments in that area are Liberty Cove, a $50 billion resort and retirement community, and Loreto Paraiso, a European-backed resort and residential community. U.S. and Spanish private and institutional funds are aggressively looking for opportunities in these new areas and other non-conventional beach cities.

—by Federico Alcocer, CCIM, SIOR, executive vice president, and Pablo Yrizar, CCIM, SIOR, executive vice president, Cushman & Wakefield Mexico in Mexico City. Contact them at federico.alcocer@cushwake.com and pablo.yrizar@cushwake.com.

West

Hines to Build Bay Area Landmark

San Fransciso’s transit authority board chose the team of commercial real estate developer Hines and Pelli Clarke Pelli Architects to build a 1.7 million-sf office tower in the city’s CBD. The 1,200-foot tower, which will be owned and operated by Hines, will be the tallest building west of Chicago. Hines offered $350 million for the site adjacent to a proposed new transit center, $200 million more than competitors Rockefeller Group Development Corp. and Forest City Enterprises.

West Coast Industrial Snapshot, 3Q07

Market Availability (%)
Seattle 12.7
San Diego 10.5
Sacramento, CA 9.9
Los Angeles metro 7.7
Orange County, CA 5.9
Portland, OR 4.8

Source: CB Richard Ellis

West

Tesco to Expand

Britain’s largest retailer, Tesco, opened its Fresh & Easy neighborhood grocery stores last November in Los Angeles, Phoenix, and Las Vegas, marking its first foray into U.S. retailing. Tesco also will build 48 of its 10,000-sf stores in California’s Inland Empire and is looking for future sites in California, Arizona, and Nevada.

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