2011 Q1 Commercial Real Estate Market Survey

8/11/2019 2011 Q1 Commercial Real Estate Market Survey

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APRIL 2011

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Commercial Real EstateQUARTERLY MARKET SURVEY

Copyright © 2011 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 1.0 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.

2NATIONAL ASSOCIATION of REALTORS® | RESEARCH DIVISION | www.realtors.org/research



APRIL 2011


2011.Q1 Survey Highlights

• Overall market activity registered slight improvements.

• Sales volume rose 3 percent from a year ago. • Sales prices declined 10 percent on a year -over-year basis.

• Leasing activity gained 4 percent from the previous quarter. • Rental rates declined 6 percent compared with the previous quarter. • Concession levels moved up 3 percent on a quarterly basis. • Financing remains at the top of the current challenges list, followed by pricing.

• The estimated average transaction declined 6 percent from the previous quarter, to $1.2million.

3

EALTORS® Commercial Activity – 2011.Q1

ales Volume Compared with Previous Quarter Down 2%

ales Volume Compared with Previous Year Up 3%

ales Prices Compared with Previous Quarter Down 6%

ales Prices Compared with Previous Year Down 10%

pected Inventory Availability for the Next 12 Months Up 8%

pected Cap Rate Movement for the Next 12 Months Up 5 bps

ental Volume Compared with Previous Quarter Up 4%

ental Rates Compared with Previous Quarter Down 6%

vel of Rent Concessions Compared with Previous Quarter Up 3%

rection of Business Opportunities Compared with Previous Quarter Up 0.8%

olume of New Construction Compared with Previous Quarter Down 8%

NATIONAL ASSOCIATION of REALTORS® | RESEARCH DIVISION | www.realtors.org/research



APRIL 2011


4

2011.Q1 Cap Rates

Office 8.4%

Industrial 8.4%

Retail 8.5%

Multifamily 8.0%

Hotel 9.7%

Development 12.0%

2011.Q1 Vacancy Rates

Office 19.0%

Industrial 18.1%

Retail 17.4%

Multifamily 8.9%

Hotel 25.5%


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1.Q1

0.Q4

Average Rental Space Demanded During Last Transaction

Over 100,000 sq ft

50,000 - 100,000 sq 10,000 - 49,999 sq f

7,500 - 9,999 sq fee

5,000 - 7,499 sq fee

2,500 - 4,999 sq fee

Under 2,500 sq feet

2%

2%

8%

12%

20%

25%

31%

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

Between $250K and $500K

Under $250K

Dollar amount of last transaction

60%

40%

Did you complete a commercial sales

transaction?

Yes

No



APRIL 2011


• ―All of the above are challenges in the current market.‖

• ―All of the above are part of the issues we are dealing with; however distressed properties have established

the values leaving arms length sales difficult to put together .‖

• ―Buyers are waiting until market turns around.‖

• ―Fear of making a move.‖

• ―Lack of demand.‖

• ―Lack of farmland for sale on the market.‖

• ―Potential buyers still riding out the storm.‖

• ―Retail – lack of SBA loans; Office – inventory.‖


0%

0%

0%

0%

0%0%

0%

0%

0%

0%

0%

2011.Q1 2010.Q4

REALTORS ® Most Pressing Challenges

Other

Pricing Gap between Buyers and Seller

National Economy

Local Economy

Financing

Distress

Inventory



APRIL 2011


6

State-level data may register large fluctuations from one period to the next due to small sample sizes in some states.


Legend

-50% - -40%-39% - -15%-14% - 0%1% - 15%16% - 63%

Data not available

Sales Volume Compared with Previous Quarter

(Based on the overall level of commercial transactions for the first quarter of 2011)(Based on the overall level of commercial transactions for the first quarter of 2011)

DC: NA



APRIL 2011


7



Legend

-60% - -40%-39% - -15%-14% - 0%1% - 15%16% - 150%

Data not available

Sales Volume Compared with Previous Year


DC: NA



APRIL 2011


8



Legend

-83% - -15%-14% - -10%-9% - -5%-4% - 0%1% - 33%

Data not available

Sales Prices Compared with Previous Quarter


DC: NA



APRIL 2011


9



Legend

-28% - -15%-14% - 0%1% - 15%16% - 30%31% - 65%

Data not available

Sales Prices Compared with Previous Year


DC: NA



APRIL 2011


10



Legend

-100% - -50%-49% - -25%-24% - 0%1% - 25%26% - 77%

Data not available

Expected Inventory Availability for the next 12 months


DC: NA





APRIL 2011


12



Legend

-39% - -10%-9% - 0%1% - 10%11% - 20%21% - 57%

Data not available

Leasing Activity Compared with Previous Quarter


DC: NA



APRIL 2011


13



Legend

-28% - -15%-14% - -10%-9% - -5%-4% - 0%> 0%

Data not available

Rental Rates Compared with Previous Quarter


DC: NA



APRIL 2011


14



Legend

-47% - -30%-29% - -15%-14% - 0%1% - 15%16% - 30%

Data not available

Level of Rent Concessions Compared with Previous Quarter


DC: NA



APRIL 2011


15



Legend

-40% - -25%-24% - -5%-4% - 0%1% - 5%6% - 15%16% - 30%

Data not available

Direction of Business Opportunities Compared with Previous Quarter


DC: NA



APRIL 2011


16



Legend

-100% - -75%-74% - -50%-49% - -25%-24% - 0%1% - 25%

Data not available

Volume of New Construction Compared with Previous Quarter


DC: NA



APRIL 2011


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 latest quarter environment.

A long way to go to flush out distressed properties and distressed lease rates. No development in industrial in next 2 years.

A lot of mom & pop businesses are really struggling to stay afloat, which makes the environment unattractive to potential nebusinesses.

Among consistent participants, there is desire to pursue activity, but the demand from end users in all sectors exceptmultifamily is just not present in the market place. There is support for new multifamily projects, but financing is difficult. A

few well-funded buyer/developers are taking advantage of the marketplace, but full occupancy of developed properties is noa part of the pro forma used to justify the purchases.

We are in the "expectation management" business- plenty of sellers ready to sell/cash out retire-but can't get their price—sothey sit

Financing for credit users and solid income-producing properties with credible down-payments (>20%) is available. Any forland or speculative developments is not. Private sector job growth is a must. Buyer/Seller gap is still wide, but closing onland and lesser income property categories.

Get ready for Stagflation—Stagnant economy with cost-push inflation.

Get the federal government OUT of our business. The Free Market System WORKS! Federal intervention does not!

I focus on single tenant net leased office & industrial properties. Cap rate are escalating because of a lack of product andincreased demand.

I see a pick-up in business but if gas and the economy does not get better the strength of the commercial market is too weeto survive.

I think that most of the overall commercial primary markets and institutional properties will fare okay, with even slightincreases in volume and rents. But overall secondary markets are declining in both sales and leasing. There are continuingvacancies from big brand stores and chains that is hurting the local secondary market: Borders, Pathmark, Blockbuster, CBetc. These have been some very recent closings with now unoccupied space. Whether or not rent is still being collected isunknown. The fact that many stores and class B and C offices are sitting half or fully empty, creates a worrisome perception

by investors. The labor market is still the main issue to contend with, both locally and nationally. Financing is also a concernMy outlook for secondary markets is flat to negative for 2011. Slight increases in vacancy, cap rates and supply. With lowerasking rents, effective rents and less absorption.

Investment buyers are everywhere, but no suitable inventory. Investors want 4%-6% returns & packages of $1-$50 million—

nothing smaller.

It has been down for over a year. I am very optimistic it will recover

It is worse than last year, though there has been a slight pick-up in activity over the last 30 days.




APRIL 2011


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

18

It seems to be getting better, not to sure, seems to be riding the fence.

Landlords are hampered by financial constraints when negotiating concessions they are very reluctant to price renewals atmarket.

Leasing and Management are the only profitable venues as of now.

Looks like the banks are just starting to loosen up on commercial.

Market is continuing to improve in the retail arena in W. Michigan. Much improvement in activity over last year. Slow steadyimprovement.

Market is improving, but seems clients are not offering. I have couple of gas stations for sale only two calls in last 10 days.No one has down payment of 20% and credit score seems to be problem.

There are more buyers and lessees out there looking for industrial properties in the San Gabriel Valley, LA County, CA.

Northeast Oklahoma is very stable.

Numerous businesses cutting back on space, closing business locations or going out of business. From Doctors to attorneybusiness is bad! Increased insurance is running businesses out of the state of Florida. We have a crisis and rising prices oall NNN charges are killing the market.

Our market has hardly any new construction and we are one of the best areas in the Houston area. My percentages may beoff a bit. I think rates have stabilized and we have not yet seen a lot of fire sales since the banks have not let go of the onesthat are distressed. We take a day at a time and are just glad we have a job even though income has dropped.

People are still hesitant to press down on the gas pedal although the numbers are looking better in the economy.

Rentals are up due to major concessions. Foreclosures will be much greater in the near future. A large percentage of owneof commercial property are delinquent on taxes. Buyers and sellers are scared.

Residential market has picked up more than commercial. Small, new owner-occupied buildings most prevalent (< 5,000 sf.office), <20,000 sf. industrial. More rehab than new construction.

See slight uptick in activity compared to last two years. Trend is in the right direction for a change.

Seems to have gained ground since the election in November. A little more optimism and certainty in the market.

Some of the percentages are estimates based on conversations with Owners and Tenants. Most of my focus now is TenanRepresentation.

Stabilize the lending sources and things will improve dramatically. Knock out the credit ratings from clients who were burneby the economy, through no fault of their own.




APRIL 2011


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

19

Stable tenants want longer leases, and landlords are looking for shorter leases so they can increase rents if/when marketturns.

The industrial market has picked up in sales and leases, but the interest comes in waves-up then flat, up then flat.

The lack of lending, allows other forms of financing. The last one I did was a seller-finance for over 800,000 with 10% downfor a 5 year term. It just worked for everyone concerned.

The larger CRE transactions seem to be handled off the market. The most of the product is coming from FDIC or local bank

The major problem we have in sales is the lack of financing available for commercial applications.

The Market seems to going in the right direction, I anticipate several closing and lease executions in the second quarter.

There may be an up-tick in activity, but ever so slight. Distressed properties are class C & D. Class A assets have remainedhealthy.

The Regulators are roaming the battlefield of 2008 and shooting the survivors.

There will not be any improvement until the banks begin to lend again; and I don't see this happening anytime in the nearfuture.

Thinking outside the box to put deals together is the only thing working. There seem to be no norms anymore and unusualfinancing between buyers and sellers seems to be the only way to make deals close. Thank goodness Commercial has fewerestraints on owner financing than Residential sales or we would see little to no transactions.

We are continuing to see a lack of supply for several macroeconomic reasons that has and will permanently reduce theavailability of long term, NNN, corporate backed assets in the market. I believe we are already seeing the start of a microbubble (in retail NNN) on "core" assets such that pricing on those are approaching 2006-07 prices which are fundamentallytoo high even with an "all cash" purchase.

We are in Michigan—all is bad!

We see opportunity on the horizon. It just seems to be taking longer to get here, than we earlier anticipated.

WE sell farmland in Illinois, values are up, up, up. People are looking for a solid investment, and agriculture is booming righnow. Very few farms are coming onto the market. And what is there is priced very high, but it is moving.

With the tremendous uncertainty of our government and wonderful country there is no way to count on anything and therefothings will not get better for some time to come.

Wyoming is not typical, energy based business.




APRIL 2011


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 markefundamentals. The Research Division also issues the

annual Commercial Member Profile, detailing the busines

and demographic characteristics of commercial members

Additionally, NAR Research examines how changes in th

economy affect the commercial real estate 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

any other commercial real estate research, please contac

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

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

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2011 Q1 Commercial Real Estate Market Survey