After a tumultuous year, this region comes back to life.
Even though much of the South Central region has
recovered from last year's weather-related catastrophes, sections remain
devastated. The New Orleans metropolitan statistical area's
population has diminished by more than 300,000 according to NAI/Latter &
Blum. Although some areas of the city still have no electricity, the status of
the industrial sector is optimistic. The area's post-Katrina industrial inventory
is about 3.51 million sf, the lowest since Dec. 2000. Demand for industrial
space from Federal Emergency Management Agency contractors, communications and
construction companies, and others helping to rebuild mounted up after the
storm but many of these tenant leases are only for one to three years.
Ala., multifamily occupancy is
very high and rents range from 50 cents to slightly more than $1 psf, according
to Southeast Real Estate Business. There is very little construction due to
high barriers to entry in the market. That along with condominium conversions
has created a tight market with very little rental space available. New
development is occurring in the downtown, midtown, and Highland Park submarkets. The Mobile, Ala., multifamily
market also saw some action this spring with the sale of the 252-unit Arlington Park
apartment complex for $22.4 million to Eagle Realty Group of Cincinnati, according to Birmingham Business
In San Antonio,
speculative office construction has increased with positive absorption. The
city has experienced positive absorption throughout the past two-and-a-half
years including more than 663,151 sf in the past year, according to Grubb &
Ellis. Rents have increased over the past several quarters as well, reaching
$17.90 psf for class A in 1Q06. New construction, including 150,440 sf, in the
North Central submarket alone, will help house the market's growing workforce.
In the retail sector, Little Rock, Ark.,
has been performing well. Along the I-430 corridor, retail neighborhood centers
are being developed. Three lifestyle centers are under construction in the
market, according to NAI Global. Development in the central business district
also is occurring due to the Clinton Presidential Library and Museum, which opened
The $50.4 million Hilton Skirvin hotel in Oklahoma City is slated
to open in 2007. Originally built in 1910, the property will be managed by
Hotels and Resorts.
Approximately $18 million in funding through economic development initiative
grants, Environmental Protection Agency brownfields loans, tax increment
financing bonds, and other means are helping to bring the project to
completion. The hotel is located downtown and will complement the Bricktown
entertainment development, according to OKC.gov.
Despite the devastation that 2005 brought to much of the
South Central region, several commercial real estate sectors have perked up
over the last year. As the one-year mark since Hurricane Katrina approaches,
now is a good time for commercial real estate professionals to evaluate what
may happen to both the markets hampered by the hurricane and the markets that
absorbed the displaced tenants and businesses.
Texas-Size Mixed-Use Development
Including 12 million sf, 4 million of which will be
office and retail, the Victory Park development in downtown Dallas is one of the largest planned urban
developments the region has ever seen. Based around the American Airlines
Center, a sports, entertainment, and performance venue that attracts more than
3 million visitors per year, the development features retail, dining, class A
office, 4,000 residential units, a W hotel, and entertainment, and aims to
become a link between downtown and the affluent Turtle Creek and Uptown
Park represents a more
than $3 billion investment and is privately owned by Dallas-based Hillwood
Capital and Hicks Holding.
Photo caption:The House by Starck and YOO is one of several Victory Park residential buildings. Planned for
completion in 2008, this 26-story, $80-million property will contain 150
residences and 30,000 sf of retail space on the ground level.
Photo credit: The 7th Art
Office Bounces Back
After a four-year rut, Albuquerque's office market experienced
absorption of more than 50,000 sf due to Sento Corp.'s leasing of space in the
Compass Bank building, according to Grubb & Ellis. While this may not be
evidence of a complete downtown turnaround, it is the first positive absorption
in years and is considered a step in the right direction.
Construction increased at the end of last year, primarily
in the North I-25 submarket, which now offers more office space than downtown
according to the New Mexico Business Journal. Additional development is not
expected as traffic issues and increasing construction costs discourage
developers. Deals will be available in the downtown area as it recovers from
several businesses leaving for suburban office space over the past few years,
according to NMBJ.
At the close of 1Q06, vacancy rates stood at 13 percent
but were expected to fall as the year progresses, reports NMBJ. Rental rates
will remain stable around $18.40 psf for downtown class A space and $14.07 psf
for downtown class B space according to Grubb & Ellis.
A new retail lifestyle development in the Uptown
submarket, ABQ Uptown is expected to encourage development in the area. Phase
one of the 350,000-sf complex is scheduled for completion in June, according to
the International Council of Shopping Centers.
Lots of activity has characterized the El Paso retail market so far this year. Central El Paso has the multimillion dollar renovation of
Simon Property Group's 1.1 million-sf Cielo Vista Mall. To keep up with a
growing population, new retail development is occurring on the east side of
town where the 450,000-sf El Paseo Marketplace is under construction. Anchored
by a SuperTarget, the center is expected to open nearly fully leased, says
Brett C. Preston, CCIM, partner with RJL Consultants in El Paso. New retailers are increasingly
entering the market and rents have surpassed $20 psf, according to Richard
Amstater, also a partner with RJL Real Estate Consultants. Still, few national
restaurant chains or mixed-use projects have moved into the market, but retail
in El Paso will
continue to grow at a steady pace.
Real Estate Business
Photo caption: The 10,800-sf Ram Plaza in El Paso is one of several retail projects built this year in anticipation of the nearly 20,000 troops expected to move into Fort Bliss.
Photo credit: River Oaks Properties
BATON ROUGE, LA.
In the days and weeks following Hurricane Katrina, Baton Rouge absorbed close to 200,000 New Orleans evacuees and 50,000 to 70,000 of
them are expected to stay permanently, according to NAI/Latter & Blum.
In the office sector, nearly all of the city's vacant
class A space became occupied within two weeks of Katrina, and class B office
space vacancy declined to 9 percent. Many of these new tenants signed six-month
leases, so long-term effects on vacancy rates are yet to be determined.
Displaced businesses also looked to Baton Rouge for industrial space. Industrial
vacancy was reduced from 11 percent to 5 percent within two weeks of Katrina.
Since the initial demand, activity has quieted down but speculative
construction has begun to move in. Two new warehouse projects - 180,000 sf and
200,000 sf - were announced in February.
Retail activity also has increased since Hurricane
Katrina. Occupancy may creep lower as the year progresses, but stands at 87.5
percent as of this spring. Three lifestyle centers, two power centers, and a
mixed-use Whole Foods-anchored town center are in development. New retailers
entering the market this year include Kohl's, Costco, Pottery Barn, Fresh
Market, Cabela's, and Bass Pro Shops.
Source: NAI/Latter & Blum
Multifamily Mercury Rising
is expected to perform well in the apartment sector throughout the year,
partially due to job growth of 4 percent.
• Most new construction will be in the outlying areas of
northwest Phoenix, Mesa,
and Ahwatukee. Approximately 5,300 new apartments will complete by year-end, a
13 percent decrease from the 2005 total.
• Effective rents are expected to rise 6.4 percent to
$688 per month.
• Condominium conversions will continue: 4,000 units were
sold for conversion last year, reducing the market net supply by 3,200 units.
• Cap rates average between 6.0 percent and 6.5 percent
and are still higher than West Coast markets.
• Central and east Phoenix,
where there is limited land for development, are growing increasingly
attractive to investors.
Source: Marcus and Millichap
Big Deals in Russia
Investor interest in Moscow's retail and warehouse markets is
strong, according to a recent DTZ Research report. Last year proved to be a
growth year for the investment segments. Russia-based LigaStroyProject
purchased the approximately 9 million-sf Europark retail center in Moscow for somewhere between
$140 million to $170 million, according to NAI Miami's 2006 Global Market
In the industrial sector, United Kingdom-based Raven
Russia Ltd. acquired a partially completed 1.28 million-sf warehouse for $110
million. Upon completion the Krekshino warehouse will be approximately 3.2
million sf. Raven Russia plans to invest approximately $900 million in the
Russian commercial real estate market.
Experts expect Houston's
office market to continue to fare well throughout the year. Growth in the
energy sector and displaced tenants from Hurricane Katrina are feeding the
leasing market, according to Marcus & Millichap. A steady gain in
population is predicted to last decades, and 600,000 jobs are expected to be
added to the market during the next 10 years. Investor interest in office
properties also will continue to flourish, according to Colliers International.
The IP Hotel & Casino, the Isle of Capri Casino
Resort, and the Palace Casino Resort, all in Biloxi, managed to rebuild and open in time
to ring in the new year, earning a combined $64 million in gross gambling
revenue during their first full month of operation. During the same month a
year earlier, nine casinos earned $90 million, according to The Sun Herald. Six
more casino hotels are expected to reopen by the end of the year. Several of
these properties are taking advantage of rebuilding to upgrade and expand their
Rapid growth in the Tucson
metropolitan statistical area during the past few years has left retail
developers scrambling to keep up. While completions of new retail space should
total 800,000 sf this year, a decrease from 1 million sf in 2005, several large
developments are in the pipeline. The largest, the Passages of Tucson, is planned
for 300 acres along the booming I-10 corridor and includes more than 2 million
sf of retail, 1.5 million sf of residential, and 800,000 sf of office. Other
new development is mostly grocery- or big-box-anchored neighborhood centers, nearly half of which
is along the I-19 corridor south of Tucson's
central business district.
Vacancy rates are expected to fall 10 basis points to 9
percent this year due to the decrease in completions and steady absorption. Low
vacancy will allow effective rents to rise 3 percent throughout the year to
$15.33 psf across all submarkets.
Investors from higher-priced markets are drawn to Tucson's low maintenance
single-tenant net-lease deals. Average
net-lease cap rates have dropped below 7 percent and dollar volume for these
transactions rose 60 percent last year. While in-state investors accounted for
half of all transaction volume, out-of-state investors dominated larger NNN
transactions such as drugstores. Tucson's
retail investment activity is expected to remain strong throughout the year and
well into the future.
Source: Marcus & Millichap