Confidence Rising in U.S. Commercial Markets

April 12, 2013 Leave a comment

By Hortense Leon

Expectations for the U.S. commercial real estate market are much more optimistic than even six months ago, according to a survey by the Urban Land Institute (ULI). Commercial real estate transaction volume in 2013 will likely reach $310 billion, up from $290 billion in 2012, a nearly 7 percent increase, the study found. That number is expected to rise to $340 billion in 2014 and $360 billion in 2015.

This data is part of the semi-annual ULI/E&Y (Ernst & Young) Real Estate Consensus Forecast prepared by the ULI Center for Capital Markets and Real Estate. The third in a series of similar surveys, the last one being at the end of September, this one polled 38 of the country’s leading real estate economists and analysts on their expectations for the real estate industry this year and for the next several years.

According to the survey, the issuance of commercial-mortgage-backed securities (CMBS) in 2013 is expected to increase by nearly 50 percent, rising to $70 billion from $48 billion in 2012. CMBS issuance is expected to reach $80 billion in 2014 and $100 billion in 2015. This follows several years when CMBS issuance was miniscule compared to 2007′s record $230 billion.

“The (ULI/E&Y) survey suggests that despite some tapering off of price increases and returns, the commercial real estate industry will, in general, be on solid footing for the next three years,” said ULI senior vice president Dean Schwanke, executive director of the ULI Center for Capital Markets and Real Estate. “After a prolonged period of uncertainty, we’re seeing a revival of investor confidence as the economy continues to recover.”

Meanwhile, the expectation for REITs, according to the National Association of Real Estate Investment Trusts (NAREIT), is that returns will drop, after soaring to 28 percent in 2009 and 2010. The lower returns are generally considered more sustainable. REIT returns are expected to be 12 percent in 2013, then drop to 10 percent in 2014 and 8 percent in 2015, according to NAREIT.

Total returns from institutional-quality direct real estate investments for the apartment, retail, industrial and office sectors combined are forecast to be 9.5 percent in 2013, 9.0 percent in 2014 and 8 percent in 2015. While continuing a downward trend that started last year, these returns are in the range of long-term historical averages, according to the ULI/E&Y survey.

Read the entire World Property Channel article here.

Filed under Finance, Market Updates, National Tagged with , ,

Despite Looming ‘Fiscal Cliff’, There is Some Good News for U.S. Commercial Sector in December

December 11, 2012 Leave a comment

By Hortense Leon

The U.S. economy is resilient, in spite of numerous obstacles, according to a December 10th report from Marcus & Millichap, using data from the US Bureau of Labor Statistics as well as its own research.

Although a deal to avoid the “fiscal cliff” with its threat of cuts in government spending and tax hikes, did not seem imminent as of December 10th, both political parties “recognize the severity of the situation,” according to the Marcus & Millichap report. Still, there is the possibility that political gridlock could result in significant blow to GDP, it says.  Although the anticipated compromise between Democrats and Republicans will include tax hikes for those at the top and government spending cuts, “these will weigh on the economy less than the uncertainty currently being faced by businesses,” according to the report.

In November, 146,000 jobs were added, which was better than what was expected, considering that many observers thought that the “fiscal cliff” situation and Hurricane Sandy would cut into job growth, according to the Marcus & Millichap report. The private sector added 147,000 jobs last month, while the government eliminated 1,000 jobs. Meanwhile, an early Thanksgiving and the Black Friday start of the holiday shopping season, gave a boost to retail sector hiring, which amounted to 53,000 in November.

The construction sector posted the most significant job loss in November because of projects being put on hold because of Hurricane Sandy. But the 20,000 jobs lost in November are expected to come back in November, along with thousands more because of the need for rebuilding in the Northeast.

The unemployment rate dropped 20 basis points to 7.7 %, the lowest level in almost four years. The decline is mostly attributed to a reduction in the labor force participation rate, which fell 20 basis points to 63.6%. The decrease was due to Hurricane Sandy, as many job seekers waited out the storm and its aftermath before beginning to search for work, as well as people waiting until after the holidays to renew their job search.

 

Read entire World Property Channel article here.

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Office Market Recovery Continues In Third Quarter Despite Election Year Jitters

October 25, 2012 Leave a comment

Occupancy, Absorption Levels Hold Serve as Market Indicators Find Recovery Continuing at Slow but Steady Pace

By Randyl Drummer

Demand for office space in the U.S. held steady in the third quarter as leasing activity and absorption of available office space continued to pick up momentum following a lackluster start at the beginning of 2012, CoStar Group reported this week in the company’s Third-Quarter 2012 Office Review & Outlook.

The overall U.S. office vacancy rate edged down and net absorption rose to 15 million square feet during the quarter from 13 million square feet at mid-year 2012. The relatively little new office supply and continued low levels of new office construction supported the balance in supply and demand.

Meanwhile, office tenants continued to enjoy a ‘holiday’ from rent increases as office rents in most market have yet to budge much from their market trough tipping point, according to analysts for Property and Portfolio Research (PPR), CoStar’s analytics and forecasting division.

“The recovery is only one-third of the way there in the office sector, we still have two-thirds to go,” said Walter Page, PPR director of research, office, who was joined by PPR’s Managing Director Hans Nordby and Manager, U.S. Market Research Aaron Jodka, in dissecting the third-quarter numbers for CoStar clients.

If there was a surprise for the quarter it was on the upside. Page said he had expected demand to fall off a bit in the quarter, based on anecdotal reports of companies postponing hiring and expansion decisions due to economic and political uncertainties created by this fall’s hotly contested presidential election and the unresolved budget impasse.

“But it held up, and we expect it to continue to hold,” Page said, buoyed by the improvement in job growth over the last couple of months.

CoStar expects leasing activity to exceed 135 million square feet nationally for the third quarter, eclipsing the 130 million square feet of office space leased during the second quarter.

“We’ve started to see pretty good leasing momentum,” Jodka said. “It was a weak first quarter, but we’ve started to see more decision-making by tenants — not at the rate we would have expected if it were not an election year or if the economy were performing better — but we’re seeing office-using job growth translate into leasing decisions and momentum , and that’s a good sign.”

Energy industry driven metros such as Houston, Dallas and Denver, and even previously challenged growth markets such as Atlanta, have posted solid gains in leasing and absorption, both in the third quarter and year to date, fueled by growth in law firms, consulting, insurance and other typical downtown tenant, Jodka noted.

On the other end, consolidation among pharmaceutical companies and other office tenant downsizings have dampened demand in Northern New Jersey. Absorption remains soft in Los Angeles outside the submarkets dominated by media and entertainment companies.

Read entire Costar article here.

Filed under Finance, Market Updates, National, Office Tagged with , , ,

U.S. Commercial Real Estate Recovery to Continue in 2013

October 18, 2012 1 Comment

New ULI-PwC Emerging Trends Report

 

The U.S. commercial real estate marketplace will continue to recover in 2013 with modest gains in leasing, rents and pricing, according to PwC US and Urban Land Institute’s Emerging Trends in Real Estate Forecast for 2013, presented on October 17th in a webcast delivered from the ULI’s annual conference held in Denver. The opinions expressed in the report were derived from over 900 interviews and surveys of commercial real estate leaders.

According to survey participants, although the real estate recovery is slower than normal, the prospects for all property sectors are better than in 2012. “Recent job creation should be enough to increase absorption and push down vacancy rates in the office, industrial and retail sectors, helped by the limited new supply in commercial markets,” according to the report.  Strong demand for apartments is expected to continue in 2013, even as new projects come online. And even the single family home sector is doing better in most regions. The only problems in the housing arena are in the leisure and second home markets.

“With the outlook for commercial real estate continuing to improve in 2013, investors are expected to allocate substantial sums of capital to the real estate asset class, according to our survey respondents,” says Mitchel Roschelle, partner, U.S. real estate advisory practice leader at PwC. “As yields on bonds and other financial instruments tighten in a still volatile market, commercial real estate’s income producing and total return attributes offer investors potentially attractive risk-adjusted returns,” he said.

Even as riskier secondary markets become more attractive to real estate investors, “many believe the move cannot be made without concentration on leasing to high-quality tenants within growth industries that are sustainable,” according to the report. But as property prices rise and even exceed pre-recession levels in San Francisco, New York City, Boston, Washington, D.C., Los Angeles and Chicago, the focus is on the lessee’s value, market demographics and job growth, among other factors.

According to survey respondents, investors should use caution in investing in secondary markets and  focus on income-generating properties at the same time partnering with a local operator who understands the market. “Markets grounded in energy and high-tech industries show the most near-term promise, while places anchored by major education and medical institutions should perform better over time,” says the report.

The top 10 markets to invest in are San Francisco, New York City, San Jose, Boston, Houston, Seattle, Austin, Denver, Orange County, California and Dallas Ft. Worth. A snapshot of the top five markets in the report lists each one’s special attributes, summarized below:

  • San Francisco is driven by growth and a strong jobs outlook led by technology. The downtown is stealing the spotlight from suburbia. Continued infill development is supported by one of the best transit systems in the country and its high level of walkabilty is second only to New York City.
  • San Jose is dominated by high technology jobs. Although there is a lack of job diversity, the 6,600 technology companies employ 225,000 people.

Read entire WPC article here.

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Approaching a Tipping Point? U.S. Office Rent Growth Lags Despite Rising Tenant Demand

July 19, 2012 Leave a comment

With Little New Supply Slated For Delivery, Landlords Should Slowly Gain Pricing Power If Recovery Remains On Track

By Randyl Drummer
Although rising levels of office absorption and a falling U.S. vacancy rate signal a strengthening market, the gains have yet to translate into meaningful rent increases for office landlords in most markets, CoStar Group reported this week in the company’s Second-Quarter 2012 Office Review & Outlook.

This week, CoStar analysts drilled deeper into the office market numbers in a report on the national office market at midyear 2012 presented to CoStar clients. And while they see encouraging signs in the broader CRE market, specifically in the office and industrial sectors, they cautioned that the recovery is likely to be slow and dependent on the rate of job growth.

“Overall for the office market in terms of demand, it’s a pretty good story,” said Hans Nordby, managing director of Property and Portfolio Research (PPR), CoStar’s analytics and forecasting division. Nordby was joined by Walter Page, PPR director of research; and Jay Spivey, CoStar senior director of research and analytics.

Although office job growth slowed on a year-over-year basis to 1.9% from last quarter’s 2.8%, it’s still growing at a much stronger rate than the broader U.S. economy, which remains a nagging source of concern to economists.

Office job growth is the life’s blood of real estate fundamentals. And those fundamentals are starting to pick up momentum, with net absorption of U.S. office space more than doubling from 8 million square feet in the first quarter to 18 million square feet in the second quarter of 2012. Despite the surge in absorption “it’s still not a screamer of a quarter” compared to the boom years of 2005 and 2006, Nordby noted.

Net absorption over the last year has totaled about 63 million square feet, translating to a 0.9% rate of growth in office demand, roughly half the rate of office job growth, Page noted. Houston, the nation’s top energy market, led the nation in absorption growth at 3.1 million square feet of net absorption. The long-suffering Atlanta market is starting to show significant demand growth.

Filed under Finance, Market Updates, National, Office Tagged with , , ,

Top 10 Threats to Commercial Real Estate This Summer

June 20, 2012 Leave a comment

By Mark Heschmeyer

Here are the Top 10 Threats to CRE this summer based on CoStar reader responses, counting down from 10 to one.

No. 10: Risk Aversion

Risk aversion is a major threat to the real estate market and our economy, resulting in too much excess property on the market. The biggest part of the problem is no one wants to take a big hit and move on to the next level.
Morton Stein, broker, Trace Realty, Franklin, TN

No. 9: Inability to Sell Properties Quickly

Commercial real estate will continue to bounce along the bottom as it has been for the past two years. There is such a backlog of underwater properties still, that it will take several more years to get them all worked out. Therefore whether the economy rebounds significantly or it plummets sharply, the net effect on asset values will be minimal.
Marty Busekrus, senior associate, CBRE | Capital Markets, Boca Raton, FL

No. 8: Aggressive Competition for Prime Real Estate Investments

While job creation and the proposed changes in the tax laws will have the greatest impact on the overall economy, the variable that will most impact CRE is overly aggressive lenders that are over leveraging assets and limiting recourse — leaving few viable exits in the event a weakening economy leads to rent compression, higher vacancies and/or increasing interest rates.
Gary Owens, senior vice president, California Bank & Trust, San Diego, CA

No. 7: Potential Increases in Interest Rates

The repeated concern my clients vocalize is the specter of rising interest rates. I am seeing this play a huge role in financing decision and hold strategies. Many times guys are opting to pay higher costs for debt if they can get a 10-year or 15-year term on a loan to hedge bets on where rates will be upon maturity. Also, some guys are even willing to endure the brain damage of a HUD loan, as they put the deal to bed for good when they close on the 223 Loan (a 35-year, fully amortizing loan product).
A.J. Beachum, senior sales associate, Income Property Organization, Bloomfield Hills, MI

The world’s liquidity would seize up if we were to see a spike in interest rates. The tipping point for the economy has always been interest rates. The Fed through the Treasury control interest rates.Luke Wood, partner, Haverwood Management LLC, Austin, TX

No. 6: Inability to Acquire Capital or Financing

One of the main reasons the housing recovery continues to stumble is that of most of the U.S. population has an inability to acquire capital or financing. The banks and mortgage companies will look for any reason not to finance a residential purchase or a refinance because they cannot sell the loan to Fannie Mae or Freddie Mac due to over restrictive under writing criteria. No one can qualify for the lowest interest rates in 60 years because the banks do not want to lend money to the average Joe.
Mike Austin, Madera County Assessor’s Office, Madera, CA

No. 5: Housing Recovery Keeps Stumbling

The secondary reason for the housing recovery stumbling is the asset impairment of the housing stock due to the banks unreasonable demands regarding selling their foreclosed inventory. There are multiple millions of properties sitting vacant for years due the banks inability to properly market and sell these properties in a reasonable amount of time. Until the banks are willing to take some of the losses and not rely on Fannie Mae or Freddie Mac’s insurance policies to cover their past bad financial decisions the residential sector cannot recover. As we have all seen time and time again, businesses cannot thrive and commercial real estate assets values will not improve until the residential sector comes out of its slump.
Mike Austin, Madera County Assessor’s Office, Madera, CA

No. 4: Financial Condition of Tenants

With little to no hiring going on our existing tenants aren’t expanding like they had been. Some of our tenants have bid work so tight they can’t turn a profit; so they’re renewals won’t happen and their ability to fulfill they’re obligated lease term is in question.
Wade Johnson, Jr., property manager, Shockey Cos., Winchester, VA

No. 3: Disorder In – or Even an Outright Breakup of – the Euro-zone

If there is a lack of foreign capital investing in the U.S., we will see less deals. I see that as a threat.
Damon Jordan, principal, The Swearingum Group Inc., Detroit, MI

We see this as a primary threat. Interest rates will go up for bonds and debt if European banks and the Euro crashes.
Luke Wood, partner, Haverwood Management LLC, Austin, TX

No. 2: Existing Debt Overhang from 2006-2008


There is still a pipeline of properties that have yet to be dealt with. You can only kick the can, delay and pray, hope and cope, for so long.
Nick Miner, vice president – investments, Commercial Properties Inc., Scottsdale, AZ

Existing lenders are more and more willing to work with borrowers to extend or modify loans. I believe these extension will backfire in the next few years when the huge refinance bubble comes. 
Doug Austin, vice president, NorthMarq, San Diego, CA

No. 1: Lack of Job Creation


All of the threats are part of a larger threat to CRE which is now “stagnation” and not “recession.” There is no real overall economic growth taking place. Some sectors, like health care or recently autos are bright spots. But until there is real job growth in the 5% range this economy will continue to limp along impacting CRE for the near term and beyond.
Phil Cody, principal, The Cody Co., Milford, MI

Job creation is the No. 1 problem or lack thereof. If jobs could be created, people could/would spend money and that should kick start a demand of goods and drive manufacturing. Bring manufacturing back to the USA! 
Greg Hunter, senior director / industrial specialist, Commerce Real Estate Solutions, Salt Lake City, UT

Lack of job creation seems the biggest stumbling block. Our part of the CRE business, office, is directly dependent upon job growth. Without additional employment there’s no need to take on additional space. 
Brian Hennessey, senior vice president, Colliers International, Encino, CA 

 

Our 2 Cents:

Although each of the above scenarios are real and have a direct impact on commercial real estate pricing, the San Francisco Bay Area always has a slightly different outlook than the national picture.  Certainly higher interest rates would affect all investments, regardless of the location, but overall investors have been bullish on this area in particular. Office and industrial continue to trend strongly, and if the location and elements are right, there are buyers with cash.  We’ll see how the trend continues in this uncertain election year, but so far we’ve seen overall positive strides in the market especially when compared to the previous 4 years.  What are you seeing?

Filed under Finance, Industrial, Market Updates, National, Office, Peninsula, R&D Tagged with ,

U.S. Borrowers Falling Behind on Commercial Real Estate Loans

April 10, 2012 Leave a comment

By Alex Finkelstein

It’s not a pretty picture. Numerous borrowers who took out commercial real estate loans in 2007 find themselves defaulting on the payback today, according to the latest research from New York City-based Trepp LLC.  Here is what Trepp found:

  • The delinquency rate for U.S. commercial real estate loans in commercial mortgage-backed securities (CMBS) jumped 31 basis points in March to 9.68%.  The value of delinquent loans is now $58.1 billion.
  • Newly delinquent loans–over $5 billion in total–put 91 basis points of upward pressure on the rate.
  • Multifamily and Office loans were the worst performing property types with each suffering significant losses.
  • The Office delinquency rate was up 37 basis points, setting a new all-time high of 9.41%.
  • The Hotel delinquency rate dropped 42 basis points and was the only major property type to improve.

“We predicted late last year that the delinquency rate would rise largely on the impact of 2007 loans coming due, and today’s report underscores that forecast,” says Manus Clancy, senior managing director at Trepp

“After the rate fell nicely in January and February, we were cautiously hopeful that we’d be wrong.  This month’s report shows that the market has a lot of wood to cut and that a rate north of 10% can’t be ruled out.”

For the second straight month, loss resolutions were relatively modest, Clancy says. At about $1 billion, the number was lower than what the CMBS market has been seeing in recent months.

The removal of these loans from the delinquent loan category attributed about 15 basis points of downward pressure on the delinquency rate, according to the Trepp report.  Loans that were cured in March put an additional 43 basis points of downward pressure on the rate.

In the banking sector, Trepp data found:

  • Five banks failed in March, up slightly from four in February.
  • The overall pace of closures has slowed since 2011, with 16 failures in the first quarter of 2012, as compared to 18 in the fourth quarter and 26 in the third quarter of 2011.
  • Commercial real estate exposure was the main driver behind problem loans for the banks that failed in March, comprising $167.6 million (81.6%) of the total $205.4 in non-performing loans at the failed banks.
  • Commercial mortgages accounted for $123.7 million (60.2%), while construction and land loans were $43.9 million (21.4%) of the non-performing total.
  • Residential mortgages were a distant second, with $19.6 million (9.5%) of the total nonperforming loans.
  • C&I loans contributed $17.5 million (8.5%) of the nonperforming total.
  • Other nonperforming loans, including unsecured consumer loans, totaled $0.7 million (0.3%).

Read entire World Property Channel article here:

Summary:  Bad debt is coming home to roost.  5 to 7 year loans are coming due now and may weigh on the commercial real estate market.  Good news for some areas is that many institutional investors are cash heavy and looking for deals.  That may help ease the burden as this bad debt cycles through.

Filed under Finance, In the News, Market Updates, National Tagged with , , ,

Rich to Invest More in Commodities, Reduce Cash

January 5, 2012 Leave a comment

As more prognostications begin to collect after the new year, it’s interesting to see these focus groups bring out their analyses.  Although things on the ground seem to still be in a holding pattern, there does seem to be a general sense of cautious optimism among investors.  We’ll see how this plays out in the months to come.  Are you planning on purchasing assets this year?  Feel like it’s time to dive back into the market?  Comment below.

By Elizabeth Ody

Wealthy investors plan to increase their allocations to commodities and private companies while decreasing their cash holdings this year, according to a survey released today.

About 48 percent of respondents said they plan to add to commodities investments during 2012 and 55 percent said they intend to make more direct investments in private companies, according to a survey by the Institute for Private Investors. About 45 percent plan to increase real-estate holdings, said IPI’s survey of its members, who are families with at least $30 million in investable assets.

“It’s part of that whole movement toward actually owning real assets,” Mindy Rosenthal, executive director of IPI, said in a telephone interview. “They’re looking at going back to the old school way of making money.”

The Dow Jones-UBS Commodity Index (DJUBS) fell 13.4 percent in 2011, according to data compiled by Bloomberg. Real estate investment trusts returned 8.1 percent last year, according to the Bloomberg REIT Index (BBREIT) of 129 publicly traded property owners. Most REITs are publicly traded companies that own and operate property including apartments and office buildings.

Emerging Markets

Commodities and agricultural real-estate may be attractive ways to benefit from growth and rising standards of living in emerging markets, said Michael Tiedemann, chief investment officer of New York-based Tiedemann Wealth Management, which manages about $6.5 billion. The firm may increase its allocation to real estate, commodities and oil- and natural-gas pipelines by as much as 4 percent through investments in private equity and stocks in the next year, said Tiedemann, whose clients on average have about $65 million under management.

Read the entire Bloomberg article here.

Filed under Finance, In the News, National Tagged with ,

Top 5 Reasons to Invest in Industrial Real Estate

January 4, 2012 Leave a comment

By Michael Hironimus

Well we’ve started the new year and perhaps you’re looking at your portfolio results from 2011.  You may have had a great year or a poor year, or maybe you are tired of working so hard on your investments that you’re ready to make a change.  I’ve listed 5 good reasons to take a look at Industrial Real Estate, particularly in the San Francisco Bay Area.  When you compare industrial to other types of real estate or even to other types of investments, you may want to add industrial to your portfolio for these reasons.  Please feel free to add other ideas or comments.

#1.  Less Management Headaches.  Industrial RE is often leased by hard-working blue collar types that handle things themselves.  Often, rather than complain about a burned out light bulb or a backed up toilet, they just go ahead and fix things themselves.  It’s rare that you have problems with systems overall, unless they are in need of updating or there are more major issues to address.  Furthermore, with industrial there is typically little to no landscaping issues or other headaches found with other types of commercial real estate.

#2.  Greater Long Term Stability.  I wrote about this not too long ago in one of the quarterly reports.  Industrial is typically more stable overall in the long term due to the overall length in leases.  Industrial leases are typically signed in the 3-5 year lease range, with 10 year leases not out of the question.  When you compare the leases of industrial real estate to other types of commercial real estate such as office, hotel and multi-family, there is less turnover which equates to a decrease in potential lost revenue.  In the graph on the right you can see that overall industrial fares the best when you look at distressed property due to greater stability and shorter vacancy periods.    The property type with the greatest amount of distressed properties (hospitality) happens to also be the shortest lease of them all; usually only a couple of nights at a time.

#3.  Cap Rates/Returns.  In most cases, you are not going to hit a home run on an industrial piece of real estate.  Unlike that hot stock you bought that tripled in price or that home you flipped, you are not going to see crazy amount of appreciation in typical years.  But that’s not necessarily a bad thing as we’ve seen in recent years.  Let’s face it, industrial real estate is not the sexiest type of investment you can have.  More often that not, you would be happier to pull out your Berkshire Hathaway stock certificate or drive someone by your updated strip mall, than take someone to the “industrial side of town” to see a square box with a few dock high doors.  Yet that’s precisely the point.  Industrial real estate rarely has the wild swings of the market and therefore rarely has the downside that goes with a retraction in the economy.  In the SF Bay Area, you can see positive returns in the 7-15% or more in good years, but having some stable real estate returns in your portfolio are more important and may help you sleep better at night.

#4.  Industrial RE is flexible.  Industrial can come in a variety of shapes and sizes.  As long as zoning applies, you can have a warehouse with not a lot of office, you can have a space that’s heavy on office with some warehouse for distribution, you can turn your warehouse into biotech space, you can turn a warehouse into a baking facility…you get the point.  Industrial real estate gives you the flexibility to cater to a tenant’s needs better than other type of real estate.   For example, it’s very difficult to turn an apartment into a mixed use space, and you certainly won’t turn an office complex into a warehouse, but industrial allows you a certain amount of flexibility in working with a lessee to make a space that’s appropriate, zoning and tenant improvement costs notwithstanding.

#5.  Industrial RE is shrinking.  We are seeing an urbanization renaissance in the U.S. right now.  Dilapidated industrial buildings are being turned into hip night clubs and chic lofts, while very little new industrial construction is occurring in the urban and suburban areas.  I recently read a great article from Zelda Bronstein, titled “Industry and the Smart City“, which explains how many zoning and planning commissions are essentially squeezing out industrial real estate in urban and suburban areas for a number of different reasons.  It’s a good read and points to a more dire issue that urban cities may face in the future.  As former industrial areas are being rezoned, such as South San Francisco’s Cabot, Cabot, and Forbes area, there is less room for suppliers and distributors to access and store their inventories.  From an investor’s supply/demand perspective, this means that industrial should only become more valuable in these areas as businesses long to be closer to the cities they supply.

Now, tell us what you think.

Also, we try to keep you up to date on the state of the Industrial market specifically on the SF peninsula, but if you aren’t getting the information, subscribe to our newsletter.  Also, if you are considering adding real estate to your portfolio in the New Year, be sure to work with an industry professional to discuss the benefits and risks along with a comprehensive list of available investments.  Happy New Year!

Filed under Finance, Industrial, Knowledge Center, San Francisco County, San Mateo County, Uncategorized Tagged with

CRE Price Index Sees First Year-Over-Year Gain Since 2008

December 16, 2011 Leave a comment

This CoStar article verifies what we are seeing in the Bay Area.  Investors are looking at their options and see growth potential and deals to be had in the market.  Volatility in the stock market, yields compared to alternative investments and the historical lows in interest rates have fueled investors to seek out commercial real estate.

Fewer Distressed Sales and Solid Investment Grade Deal Activity is Driving Sustained Pricing Rebound

By Randyl Drummer

CoStar’s monthly National Composite Index of commercial real estate prices increased 2.2% in October from the same period a year ago, the first year-over-year improvement since the economy took a sharp downward turn in 2008.

The solid recovery of investment-grade property prices and the continued decline in distressed sales volume spurred the growth in commercial property pricing, lifting the index to an impressive 1.8% gain in October from the previous month and continuing its upward trend.

The year-over-year and monthly increases in October reflected long-awaited positive momentum in the composite index, which has now achieved a steady 1.3% average monthly growth rate over the six-month period between May and October 2011, according to this month’s CoStar Commercial Repeat Sale Index (CCRSI), based on 743 repeat sale transactions recorded in October and more than 100,000 repeat sale transactions since 1996.

Other highlights from this month’s CCRSI report include the following:

  • The General Commercial Index continued its steady move upward, increasing by 1.4% in October, the sixth consecutive month of rising prices since reversing the 32-month downward trajectory in general commercial property pricing that began in September 2008.

 

  • The Investment Grade Index gained a strong 3.4% in October from the previous month. After bottoming in late 2009, this index bumped along near the bottom around the same level for almost two years before beginning its recent climb in March 2011. Growth resumed in September following a brief pause in August, and CoStar analysts predicted sustained growth because it synchronizes with the price increase tracked by the General Commercial Index, an indication of an across-the-board recovery.

 

  • Stable fundamentals across most commercial property markets and product types, including improving occupancy, and softening downward pressure from distress sales, supported the solid performance of both the investment grade and general indices. The level of distress sales as a percentage of general commercial repeat sales fell from 33% in March 2011 to 24% in October 2011. For investment-grade properties, this ratio dropped even more steeply, from 53% to 28% in the same period.

Read more of the CoStar article here.

Filed under Finance, Market Updates, National Tagged with ,

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