Market Data

Southern Comfort

Job and population growth boost retail and multifamily potential.

T he southeastern United States is home to some of the nation's most active real estate markets. The Washington, D.C., metropolitan area leads the nation in job growth and office absorption, while the South Florida market is experiencing some of the nation's largest population influxes and multifamily demands.

To meet these population demands, multifamily construction and condominium conversion have increased in several areas throughout the region including Florida, Georgia, North Carolina, and South Carolina. In fact, three of the top 10 metro areas for multifamily construction — Miami, Atlanta, and Fort Lauderdale, Fla., — are located in the Southeast, reports Southeast Construction.

Southeastern retail markets are keeping pace with regional multifamily construction as well. Suburban developments in areas such as Palm Beach County, Fla., Charlotte, N.C., and Columbia, S.C., saw increased demand in late 2004 as availability in central business districts decreased, according to Grubb & Ellis.

While not as active throughout the region as retail and multifamily, the office market made slow and steady improvements in several of the Southeast's largest cities last year. Vacancies fell in Miami, Nashville, Tenn., and Palm Beach County during 3Q04, reports Grubb & Ellis. After several quarters of negative absorption, the Atlanta market also began to see growth at year's end.

The industrial market should reap the benefits of the Southeast's growing economy this year with new development in the pipeline. At the close of 3Q04, Atlanta had 3.6 million square feet of industrial space under construction, while Washington, D.C., and Memphis, Tenn., had 2.1 million sf and 3.2 million sf respectively, according to Colliers.

The Southeast's balmy temperatures and tourist attractions always have been strong regional economic drivers. The hospitality market, despite experiencing slight setbacks last year due to rising gas prices and inclement weather, is expected to continue to thrive in areas such as South Florida and Atlanta.

The Southeast shows promise in nearly every sector this year. The region's economic growth rate is one of the strongest in the country and will help the commercial real estate market remain healthy.

Southern Florida

Multifamily Construction Hotbed
Despite South Florida's decreasing unemployment rates and strong in-migration, new construction and condominium purchases are expected to increase the region's multifamily vacancy rate. Condominium conversions, a popular option for building owners due to the current low interest rates, are removing renters from the market. Throughout South Florida, nearly 14,300 apartments were slated for conversion at year-end 2004, 86 percent of which were located in Miami-Dade County.

The Tides at Hollywood Beach development is one of the biggest condominium conversions ever undertaken in the region, according to the South Florida Business Journal. The project includes the rehabilitation and redesign of the Ocean Crest apartment towers built in 1968. The 954-unit property features one- and two-bedroom luxury apartments with private balconies. MCZ Development and Centrum Properties purchased the joint-venture property for $160 million and expect to spend more than $20 million on the rehabilitation, which began last December. The partnership also purchased and redesigned The Wave, a 551-unit converted condominium property north of the Tides.

Such conversions as well as new construction pushed vacancy rates to around 7 percent at year-end 2004, reports Marcus & Millichap.

Still, multifamily sales remain high in South Florida. Average selling prices for apartment buildings increased by 40 percent to $125,000 per unit last year, according to the South Florida Business Journal.

Nashville, Tenn.

Industrial Market Picks Up
• Net absorption reached 1 million square feet twice last year.

• Vacancy rates decreased, and average asking rents remained solid at $3.85 per sf during 3Q04.

• Leasing activity increased in the Interchange City submarket.

• Recent transactions include Lexington Corporate Properties Trust's purchase of the 677,000-sf Beck Arnley facility for $25.4 million and Dividend Capital Trust's purchase of the 520,000-sf Mid-South Logistics V for $19.5 million.

Source: CB Richard Ellis

Memphis, Tenn.

Retail Holds Promise
Memphis, Tenn.'s retail activity was strong in 2004. Mid-year asking rents were up 15 cents from 2003 to $12.90 per square foot, and overall vacancy was down. Signs of growth were evident, especially in submarkets such as Collierville, Southaven/Horn Lake, and Olive Branch, Tenn., according to CB Richard Ellis.

Collierville boasted the metropolitan statistical area's highest absorption rate — 209,538 square feet — and nearly 253,000 sf of new construction at mid-year 2004. And, retail activity in the affluent, fast-growing suburb shows no signs of slowing down. For instance, Avenue Carriage Crossing, a partnership between Cousins Properties and Jim Wilson & Associates, is due for completion by mid-year. The 800,000-sf lifestyle center includes approximately 100 retail units.

Other submarkets remain active as well. Two new lifestyle centers, the 800,000-sf DeSoto Point and the 480,000-sf Southaven Town Centre, will open in 2006, further boosting the area's retail health.

Atlanta

Tourism Boom
The Southeast's hospitality market is in the midst of a comeback and Atlanta is reaping the most rewards, reports Marcus & Millichap. The city's hotel occupancy was 60.5 percent through 3Q04 and is expected to increase this year. Several large trade shows are planned in the area that also will attract business travelers, reports the Atlanta Business Chronicle.

In addition, new tourist attractions may draw more visitors to the city. Opening this fall, the Georgia Aquarium is expected to attract more than 2 million visitors in its first year. Also, Atlantic Station, a 140-acre mixed-use development, is expected to open its first phase this spring. The complex includes 12 million square feet of retail, office, residential, and hotel space as well as 11 acres of public parks. A 26-story hotel and condominium high-rise also is scheduled to open this spring.

Charlotte, N.C.

Big Business
As home to eight Fortune 500 companies' national headquarters, Charlotte, N.C., is expected to attract more major corporations this year. Companies favor the market because of its central location at the intersection of Interstates 77 and 85. Other draws are low operation costs and high quality of life, reports Plants Sites & Parks.

Of Charlotte's 11 submarkets, eight produced positive absorption in 3Q04 for 95,423 square feet of total absorption. Still, vacancy increased 17.3 percent from 2Q04. The metropolitan statistical area's lease rates averaged $19.54 in 3Q04, with the highest rates reported in the central business district and Southpark submarket. Rates are expected to remain constant this year, according to the Charlotte Chamber of Commerce.

Jacksonville, Fla.

Rampant Retail
The Jacksonville, Fla., retail market picked up speed in 2004, moving into the top 50 metropolitan markets for retail sales according to Sales & Marketing magazine. Community centers are the most popular retail product in the Jacksonville area, accounting for more than 11 million square feet, according to CB Richard Ellis. During 3Q04, this property type experienced an influx in tenants resulting in 200,000 sf of absorption.

Richmond, Va.

Industrial Slowly Improves• Demand for general industrial and flex/biotechnology space increased during 4Q04. Interest in leasing is on the rise, but still is being outpaced by purchasing.

• Several new flex/biotechnology developments are planned or underway. Purchase prices vary from $80 psf to $95 psf for shell space.

• Vacancy rates at the close of 4Q04 were lowest in the biotechnology sector at 11.4 percent.

• Fourth-quarter 2004 asking rents ranged from $4.03 for warehouse/distribution space to $8.67 for biotechnology space. The average asking rent for all industrial space was $4.30.

• Both local and national investors showed interest in manufacturing facilities at year-end 2004.

Source: Grubb & Ellis

Washington, D.C.

U.S. Office Absorption Leader
The Washington, D.C., metropolitan area, including suburban Maryland and northern Virginia, led the nation in 3Q04 absorption with 3.8 million square feet of absorbed market space.

Metro Washington, D.C., also led the nation in 3Q04 new construction with 7.3 million sf underway.

The overall 3Q04 vacancy rate was 10.4 percent, including 31.2 million sf of vacant and sublease space.

Metro Washington, D.C., leads the nation in job growth and has the lowest unemployment rate. Between 3Q03 and 3Q04, 66,000 new jobs were created and economists predicted 76,200 new jobs by year-end 2004, requiring 9.4 million sf of office space.

Sources: Advantis Real Estate Services and Grubb & Ellis

CCIM Market Snapshot

"There are a lot of investment sales going on at record prices. Florida is still a bargain, even though sale prices have increased. The market gets a lot of attention from Canadian and European real estate investment trusts, and I don't see it slowing down in 2005, even if interest rates marginally increase."

—Cheryl M. O'Neil, CCIM, senior managing director, Studley, Tampa, Fla.

Carolyn Bilsky

Area report is written by Carolyn Bilsky, associate editor of Commercial Investment Real Estate. Contact her at (312) 321-4507 or cbilsky@cciminstitute.com.

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