2010 Q1 Commercial Real Estate Market Survey

8/11/2019 2010 Q1 Commercial Real Estate Market Survey

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Commercial Real EstateQUARTERLY MARKET SURVEY

June 2010

NATIONAL ASSOCIATION OF REALTORS®

The Voice for Real Estate ®

NATIONAL ASSOCIATION OF REALTORS

ECONOMIC RESEARCH



JUNE 2010



Download this report from:

http://www.realtor.org/research/research/cre_market_survey


Copyright © 2010 NATIONAL ASSOCIATION OF REALTORS®. Reproduction, reprinting or retransmission

in any form is prohibited without written permission. For questions regarding this matter please e-mail

[email protected].

THE NATIONAL ASSOCIATION OF REALTORS®, “The Voice for Real Estate,” is America’s largest tradeassociation, representing 1.1 million members involved in all aspects of the residential and commercial real

estate industries..

Although the information presented in this survey has been obtained from reliable sources, NAR does not

guarantee its accuracy, and such information may be incomplete. This report is for information purposes

only.

The REALTORS® Commercial Real Estate Market Survey measures quarterly activity in

the commercial real estate markets. The survey collects data from commercial Realtors®.

The survey is designed to provide member Realtors® with an overview of their markets’performance, sales and rental transactions, along with current economic challenges and

future expectations. The questions are designed to capture the effects of the existing

economic conditions on the commercial real estate business. Each quarter, participants

respond to questions regarding the current demand for commercial properties, price, cap

rates, rental concessions and other economic factors.

2



JUNE 2010




2010.Q1 Survey Highlights

• Sales volume declined 6 percent in the first quarter compared with a year ago.• Sales prices declined 16 percent in the first quarter on a year-over-year basis.

• On a positive note, leasing activity rose 3 percent from the previous quarter.• However, rental rates declined 10 percent compared with the previous quarter.• Concession levels moved up 9 percent on a quarterly basis.• Financing continues to top the list of most pressing current challenges, followed by thepricing gap between buyers and sellers.

• The estimated average transaction value was $1.2 million.

3

EALTORS® Commercial Activity – 2010.Q1

ales Volume Compared with Previous Quarter Down 3%

ales Volume Compared with Previous Year Down 6%

ales Prices Compared with Previous Quarter Down 9%

ales Prices Compared with Previous Year Down 16%

pected Availability for the Next 12 Months Up 12%

pected Cap Rate Movement for the Next 12 Months Up 9 bps

ental Volume Compared with Previous Quarter Up 3%

ental Rates Compared with Previous Quarter Down 10%

vel of Rent Concessions Compared with Previous Quarter Up 9%

rection of Business Opportunities Compared with Previous Quarter Down 1%

olume of New Construction Compared with Previous Quarter Down 16%



JUNE 2010




4

2%

1%

8%

14%

20%

55%

Over $10 M

Between $5 M and $10 M

$2 M and $5 M

Between $1 M and $2 M

Between $500K and $1 M

Under $500K

Dollar amount of last transaction

2010.Q1 Cap Rates

Office 9.1%

Industrial 9.0%

Retail 8.9%

Multifamily 8.6%

Hotel 10.3%

Development 11.7%

2010.Q1 Vacancy Rates

Office 21.2%

Industrial 18.8%

Retail 20.8%

Multifamily 12.1%

Hotel 26.0%

Development 38.6%

54%46%

Did you complete a commercial sales transaction?

Yes

No

0% 20% 40% 60% 80% 100%

10.Q1

09.Q4

08.Q4

Average Rental Space Demanded During Last Transaction

> 100,000 sq ft

50,000 to 99,999 sq

10,000 to 49,999 sq

< 10,000 sq ft



JUNE 2010




• “Appraisal; Lack of sales - little financing available.”

• “Business is on 'hold' - little activity.”

• “Buyers are waiting for the land market to decline further. Until houses start selling for more than it cost tobuild them, land market is going to be slow.”

• “Lack of demand due to business being off significantly.”

• “Local Government approvals.”

• “No confidence in our President & Congress' Leaders.”

• “Oil in the Gulf.”

• “Perceptions - when's the upside?”

• “Real estate taxes are killing all of us.”

• “Stock Market's volatility impeding buyers from coming forward.”

• “Tenants not making decisions even ones that would benefit them.”

• “There is NO money available from banks or even private sources and the local; economy will become evenworse by the end of the year as a total of about 28,000 people will directly and indirectly lose their jobs with

the shuttle closedown. This area will be a ghost town; prices are already down as much as 200% from 2006.

5

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

2010.Q1 2009.Q4

REALTORS

®

Most Pressing Challenges

Other

Pricing Gap between Buyers and Seller

National Economy

Local Economy

Financing

Distress

Inventory



JUNE 2010




6

-19%

1%

5%

4%

3%

8%

-25%

8%

0%

-11%

0%

-3%

17%

6%

-5%

4%

6%

-50%

3%

-3%

3%

5%

-3%

-70%

-18%

5%

8%

-8%

1%

-2%

-25%

0%

-23%

-22%

-10%

28%

-20%

5% 45%

-23%

-33%

-18%

-15%

-25%

-30%

0 250 500 750 1,000125Miles4

Legend

-70% - -30%-29% - -15%-14% - 0%1% - 15%16% - 50%

Sales Volume Compared with Previous Quarter

(Based on the overall level of commercial transactions for thefirst quarter of 2010)(Based on the overall level of commercial transactions for thefirst quarter of 2010)

-40%

5%

NA

NA

NA

NA

DC: 50%



JUNE 2010




7

-12%

-75%

24%

5%

21%

-13%

39%

-19%

0%

13%21%

2%

10%

-6%

-50% -9%

-7%

-18%

-75%

-2%

-2%

-25%

-30%

3%

-4%

-12%

-3%

0%

-10%

-20%

13%

-22%

-18%

-12%

0%

14%

13% 35%

-34%

-5%

-15%

-11%

-50%

-43%

0 240 480 720 960120

Miles4

Legend

-75% - -40%-39% - -15%-14% - 0%1% - 15%16% - 40%

Sales Volume Compared with Previous Year

(Based on the overall level of commercial transactions for the first quarter of 2010)(Based on the overall level of commercial transactions for the first quarter of 2010)

15%

NA

NA

NA

NA

NA

NA

NA

DC: -75%



JUNE 2010




8

-6%

0%

-7%

-8%

0%

0%

-6%

-11%

-16%

0%

-5%

-17%

-3%

-1%

-11%

-3%

0%

-7%

-70%

-13%

-5%

-2%

-13%

-12%

-18%

-4%

-10%

-3%

-1%

0%

-13%

-6%

-10%

-10%

-12%

-12%

-5%

-3% 0% -7%

-19%

-6%

-6%

-20%

-5%

0 240 480 720 960120

Miles4

Legend

-70% - -20%-19% - -15%-14% - -10%-9% - -5%-4% - 0%

Sales Prices Compared with Previous Quarter


-15%

DC: NA

NA

NA

NA

NA

NA



JUNE 2010




9

-11%

5%

-15%

-25%

0%

-22%

-35%

-7%

1%

-25%

-5%

-15%

-5%

-35%

-21%

-8%

-50%

-17%

-8%

-5%

-16%

-26%

-15%

-22%

-6%

-10%

-5%

-25%

0%

-17%

-25%

-21%

-24%

-16%

-12%

-18%

-16%

-15%

-5%

-26%

-3%

-2%

-10% -15%

-30%

-18%

0 240 480 720 960120

Miles4

Legend

-50% - -35%-34.9% - -20%-19.9% - -15%-14.9% - -5%-4.9% - 5%

Sales Prices Compared with Previous Year


-30%

-5%

NA

NA NA

DC: -25%

















JUNE 2010




The REALTORS® Commercial Real Estate Quarterly Market Survey asks participants to

comment on current challenges and difficulties in their markets. Below are a few of the

comments about the 1ST quarter 2010 environment and members’ most pressing concerns.

• "1. Need a bold financing policy for financing commercial transactions on minimum 7 to 10 years papers instead of currentrange of 5 to 7 years. 2. SBA loan limits should be revised upwards. 3. Tax treatment on interest charge offs should bemodified to lessen the burden on tax payers. 4. Incentives for new investments should be increased.“ • "A lot of business owners are 4 to 5 mortgage payments behind, help is needed for business owners or we have a hugewave of foreclosures coming in our direction.” • "Appraisals have gone crazy with values being afforded only at about 60% of agreed sales prices or 2 or more cap pointsabove income valuations.”

• "As stated before THERE IS NO MARKET IN REAL ESTATE IN THIS AREA OF ANY CONSEQUENCE if the banksCONTINUE TO accept short sales at any price offered and appraisers are allowed to use these so called sales as comps ththis area will take decades to return to a normal level of value. It has been stated that it will take until 2039 to come bac k.” • "Banks say they're lending, but when it comes time to actually approve a loan, they get scared and find 101 reasons why nto do a deal, even with very substantial clients.” • "Best time ever for a tenant to look at early lease renewal. Saving clients 15 -25% on lease cost" • "Buyer and leasing traffic is low, and job creation is anemic.“ • "Buyers and Tenants are more optimistic today than they were last quarter and last year.” • "Buyers are returning to the market place as well as lessors although confidence remains low and deals are few and farbetween.” • "Challenging to make things work as lenders are reluctant to finance except for cream deals with big down payments andadditional collateral.”

• "Commercial sales are very difficult right now - and have been for over a year - because of lack of commercial lending. Assuch, our business has changed to leasing with purchase options until the mortgage markets straighten out - hopefully soon• "Commercial tenants are asking for discounts on their current leases. Residential tenants are asking for repairs but notdiscounts on the rents.” • "Confidence is lacking. Buyers/renters slow to pull trigger on the deal. Financing remains difficult to obtain. Sellers /ow nersare still not realistic about pricing and willing to hold off - price gap is still there” • "Cooperative attitude among Brokers is up 100 percent from last year." • "Current market is flooded with opportunist buyers looking for extreme value, most buyers are looking for distressed properties and have began to look at purchasing notes in a way to take over properties. Regular sales as we had known hassmall percentage of the total sales in my area.” • "Employment is increasing by a bit, but expect a rise in unemployment once state and local governments start reducingstaffing (Oklahoma is a balanced budget state). Expect foreclosures (which are not significant today) to increase as many properties will not be able to refinance at current terms. Expect national unemployment to rise and put the country into a "W

recession...” • "Even at drastically reduced prices compared to two years ago, buyers are still reluctant to take the plunge, fearing they arstill overpaying.” • "Everyone is paralysis fearful of National Politics and Policy.” • "Financing Availability and pricing gap between buyers and sellers, lack of investors investing in RE due to other moneymarkets fluctuation” • "Financing for national chains as well as local tenants together with a poor economy has kept leasing activity slow” • "Financing is the biggest problem. We have manufactures with contracts but they cant get funds for expansion. Rents aredown and vacancy is up. Still declining.” • "Financing is the number one Hurdle for purchases. Although industrial is hit hardest, there's more activity on floor spac eincrease.”

17



JUNE 2010




The REALTORS® Commercial Real Estate Quarterly Market Survey Comments—continued

• "Good opportunities but people waiting - do not know what to expect in the next 6 months.” • "Government involvement at every level is hampering improvement and growth” • "Greatest fear is the negative long-term effects of government activities and interference in the market place and withfinancing industry.” • "High tech job opportunities expanding - expect positive impact on real estate within next 24 months” • "I believe it is better than a year ago, but everyone is still nervous. Things will not change until true commercial financingcomes back. Then I can create jobs thru construction.” • "I believe we may be close to bottoming out in the Commercial Market. Cap rates have firmed up and have stoppeddropping.“ • "I have been a licensed and practicing Broker for 30 years. It's never been this bad , including the RTC days !!!!!!!!!!!!!”

• "It probably will never happen but the disposition/marketing process for the backlog of foreclosed property needs definiteimprovement. One of the main problems slowing this rebound down is the way the FDIC and banks which have taken back property are handling the marketing and disposition process. They need to hire actual commercial real estate brokers(seasoned) at the beginning instead of waiting several months after property is taken back. Example, I made an offer on a property 5 months ago to the FDIC contractor working on the asset for the bank which was taken over. They did not have thauthority to sell it; now over 7 months later the property was finally listed with an Atlanta real estate company and the off er wsent in was never countered and we were just told two weeks ago that we had to complete the ""FDIC approved"" forms andthat was the only way they would review offer. This could have been told to us at the beginning; the offer could have beenmade; countered and possibly the FDIC could have rid of the property seven months ago. Maintaining just this one site forseven months I am sure has cost someone (taxpayers) thousands of dollars and multiply that by hundreds or thousands of properties and the inefficiencies are very clear. The way all this has been handled at least based on personal and networksources experience has been slow, very inefficient. I realize they are definitely educated bankers/finance guys involved but

they need to have experienced, commissioned commercial real estate professionals involved at the beginning. Many of the properties could be sold or have buyers lined up within days of knowing the properties were being taken back. Theinefficiencies are definitely causing a great deal of the back log. There are hundreds/thousands of buyers with cash ready tobuy and I am hearing it from many sources that it would be great to buy but it is taking forever to get approvals. These are ncomplicated deals it is just the parties involved are experienced bankers but don't know how to sell commercial property. If they did they would not have eventual commercial brokers handling the marketing and sale of property. The other main poinbelieve which is slowing the process down is the brokers themselves obtaining listings and not actually broadcasting it to themarketplace but keeping some of the best properties as ""pocket"" listings. This is not I don't believe legal but there havebeen multiple properties out there which have been taken back; no signs on the property; no marketing materials sent out; nlistings on loopnet, costar, etc. but the property is owned by a bank and being listed by a local broker." • "It will come back. Its just a question of time. 18 months? 60 months?” • "It's tough out there, and don't expect too much to change in the near future.” • "Job creation is the number one goal for a turn around in the local economy. So more and more concessions have to begiven to the new business in order to get them up and running.” • "Job opportunities in product transportation, upgrading energy delivery, as well as infrastructure enhancements are muchneeded.” • "Job uncertainly and lay-offs are significantly affecting sales in a negative way.” • "Landlords/owners are more confrontational on broker fees. Even beyond paying lower fees, some are approaching tenanwith incentives to deal direct, without a broker.” • "Large imbalance between number of sellers to number of buyers - supply far exceeds demand” • "Larger sales transactions are not getting done due to financing and low investor confidence.” • "Looking for a second dip in the economy about 12 to 18 months out!” • "Lot's of people willing to consider purchasing but there is very little financing available and what is available is subject tosevere underwriting requirements.”

18



JUNE 2010





• "Market is hard to define right now. Several new construction projects underway. New construction started about a yearago and increased within the last 3 months. Vacancies are still high but new construction is moving forward anyway.” • "Market is slowly recovering. Will be a long process due to amount of available product on the market. Little to no newdevelopment.” • "Market is sluggish with few transactions in office and industrial segments.” • "Market is stabilizing which would be good without government interference.” • "Market is supported by the Federal Government activity” • "Modest opportunistic buying and leasing occurring in retail and land banking. Residential subdivision activity still occurrinwith intent to sit on permits until market recovers.” • "More leasing activity, but it doesn't necessarily translate into completed transactions. Many lease renegotiations are still taking place with pressure on LL concessions.” • "My market is unique with gov't stimulus $$ infused into the economy & an abundance of gov't contracts. Small business &service industries are still suffering” • "Our market has been very hard hit with unemployment at 12-14%” • "People are sitting on the fence unless they feel they can steal something." • "Pres. Obama said in his state of the union he was going to give $30 billion to community banks to make loans. No bank hreceived this. People I know have bought their 1st residence and they have not received the $8,000--has anyone received th$8,000???” • "Price of property value dropping below purchasing price. Sellers upside down. Economy is in extremely bad condition annot getting any better. Fear of oil spill. and the list goes on!” • "Some banks are unable to lend commercial loans. Banks are spending more time for due diligence, making the deals morand more difficult.”

• "The banks are not only not lending money, they are not renewing notes on good projects with very well established goodclients. The regulators are telling bankers that they have to reduce their commercial portfolio by 20%. Banks are having to nrenew with well established clients to reach that 20%, and if you have been released from one bank, you can't get a loan witanother bank that is faced with reducing their commercial portfolio by 20%. Many projects that are keeping their existingloans are not allowed to do any more construction.” • "The commercial market values are decreasing in this part of Central Florida. Clients find it difficult to find financing. Findi properties is not a problem, as the market is saturated with commercial sales and leasing opportunities.” • "The Commercial Real Estate Market has suffered a big turndown since 2008. In this very moment there are a big gapbetween buyers and sellers. The buyers are waiting for distressed properties coming down to the market.” • "The correlation between Employment and business activity is 1 to 1. Consumer Confidence to employment is 1 to 1 weneed better news and higher employment.“ • "The current market is still dependent on how the Residential market goes.” • "The is no new demand for sales or leasing. There is no urgency. The Austin market continues to create jobs enough to horeal estate prices steady with free rent up front” • "The market in Carefree, Cave Creek and N Scottsdale, AZ is markedly improved since a year ago. It would appear thebottom has come and gone for the most part here. There will still be "steals" as a result of distressed seller's for a awhile tocome BUT those homes are being snatched up quickly ( 1-2 weeks @ most ) even if they are 'dogs". The appraisal issueremains the biggest hurdle- scary always @ best. Appraisers from all parts of The Valley whose expertise is not in my areaand who refuse to compare apples to apples- dumb idiots @ times. Long for the day when you could request a speciaiist- Aleast as agents we are now permitted to talk to them and educate them w/ regards to our area.” • "The market is slower to recover than I have seen in 30 years of brokerage”

19



JUNE 2010





• "The Real Estate market has many challenges to overcome the shortage of available financing and underwriting cuts.President Obama's 4% transfer tax on residential, computed interest and capital gains as ordinary income, unnecessaryreporting requirements, over burdensome property taxes are things that will hurt the recovery of real estate. Keep governmeout of real estate and reduce property taxes. Government needs to find another source of revenue. The government needs tquit riding the backs of property owners. Real estate is one of the last pieces of free enterprise left in the country.” • "THE REAL ESTATE MARKET IN ALL SECTORS WILL NOT CHANGE DRAMATICALLY FOR AT LEAST THE NEXT TWYEARS IF THEN.THE SO CALLED EXPERTS ARE NOT TELLING THE TRUTH” • "The reason for the 100% increase, I didn't do much last year and in selling land, work with banks and they are now startinto release distressed properties and I am able to take advantage of the sale of the properties.” • "The unemployment rate in our county has created an entrepreneur climate wherein offices have a greater rental rate.However, due to over construction of offices and a highly competitive market, leases have been harder to acquire. Residentapartment sales have sagged over the last year, but international interest has started a slight increase in sales over the last months." • "There are a lot of tenants moving around for lower pricing per square foot. Very little new tenants or start up companies.Landlords are having a very difficult time refinancing because cap rates have readjusted were the property value has droppe40%. Big problems for large commercial owners.” • "There is currently no market for commercial financing in my area at this time. If banks cannot sell to a secondary marketthere is no financing available.” • "There is virtually no tenant demand in any sectors” • "Things are getting better - We closed three leases this week” • "Until the financial institutions start lending again property values will continue to spiral downward and we will see a lot morcommercial properties go into foreclosure.”

• "Very concerned about effect of so many commercial loans resetting.” • "WE are enjoying a fairly strong market, however the national economy is having an impact on our market.” • "We are seeing a dumbbell effect. Great deal of interest in core assets and distress assets. Not a lot of activity in the produin between.” • "we continue to see the weakness in Retail RE market. Lots of rent rebate to existing tenants + new lease rate are about50% off from the peak market of 2007 and 2008.” • "We have not bottomed out on the west coast.” • "We have the best inventory available in years but the banks are not lending and people are not buying” • "We have to stop the growth of our federal government. Government is not creating any jobs in the private sector. Capitalisis the only way out of this nightmare.” • "We need Oil problem solved, this could put us in worse shape than the Great Depression” • "We need the banks to loosen the purse strings and we need the development community to get back in the game.” • "We need to push to get people back to work. All of the other issues are not important if unemployment is not addressed.The White House is worried about the wrong things and we need to set them straight. Fix unemployment and everything elswill fall into place” • "When banks were banks we were developers now we are brokers and have clients that turn to people for money andarrange financing through non institutional non bank entities.“

20



JUNE 2010



NATIONAL ASSOCIATION OF REALTORS ®

RESEARCH DIVISION

The Research Division of the NATIONAL ASSOCIATION

of REALTORS® produces the Commercial Real Estate

Outlook, a quarterly report forecasting commercial markfundamentals. Additionally, NAR Research examines ho

changes in the economy affect the commercial real esta

business, and evaluates regulatory and legislative policy

proposals for their impact on REALTORS®, their clients

and America’s property owners.

If you have questions or comments regarding this report

or any other commercial real estate research, please

contact George Ratiu, NAR Economist, [email protected].

To find out about other products from NAR’s ResearchDivision, visit www.REALTOR.org/research.

NATIONAL ASSOCIATION OF REALTORS ®

Research Division

500 New Jersey Avenue, NW

Washington, DC 20001

Documents

2010 Q1 Commercial Real Estate Market Survey