2011 Q2 Commercial Real Estate Market Survey

8/11/2019 2011 Q2 Commercial Real Estate Market Survey

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JULY 2011

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Commercial Real EstateQUARTERLY MARKET SURVEY

Copyright © 2011 NATIONAL ASSOCIATION OF REALTORS ®. Reproduction, reprinting or retransmissionin any form is prohibited without written permission. For questions regarding this matter please [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 realestate industries..

Although the information presented in this survey has been obtained from reliable sources, NAR does notguarantee its accuracy, and such information may be incomplete. This report is for information purposesonly.

The REALTORS® Commercial Real Estate Market Survey measures quarterly activity inthe 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 andfuture expectations. The questions are designed to capture the effects of the existingeconomic conditions on the commercial real estate business. Each quarter, participantsrespond 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



JULY 2011


2011.Q2 Survey Highlights

• Overall market activity contracted following broader macroeconomic slowdown.• Sales volume declined 3 percent from a year ago. • Sales prices declined 13 percent on a year -over-year basis.• Leasing activity gained 4 percent from the previous quarter. • Rental rates declined 7 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 9 percent from the previous quarter, to $1.1million.

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EALTORS® Commercial Activity – 2011.Q2

les Volume Compared with Previous Quarter Down 8%

les Volume Compared with Previous Year Down 3%

les Prices Compared with Previous Quarter Down 8%

les Prices Compared with Previous Year Down 13%

pected Inventory Availability for the Next 12 Months Up 3%

pected Cap Rate Movement for the Next 12 Months Up 8 bps

ntal Volume Compared with Previous Quarter Up 4%

ntal Rates Compared with Previous Quarter Down 7%

vel of Rent Concessions Compared with Previous Quarter Up 3%

rection of Business Opportunities Compared with Previous Quarter Down 3%

lume of New Construction Compared with Previous Quarter Down 11%

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



JULY 2011


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2011.Q2 Cap RatesOffice 8.7%Industrial 8.8%Retail 10.0%Multifamily 8.6%Hotel 9.4%Development 14.1%

2011.Q2 Vacancy RatesOffice 20.1%Industrial 17.1%Retail 19.3%Multifamily 9.8%Hotel 20.4%


60%

40%

Did you complete a commercial salestransaction?

Yes

No

1%

2%

7%

14%

21%

20%

35%

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

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

1.Q2

1.Q1

Average Rental Space Demanded During Last Transaction

Over 100,000 sq ft

50,000 - 100,000 sq ft10,000 - 49,999 sq ft

7,500 - 9,999 sq feet

5,000 - 7,499 sq feet

2,500 - 4,999 sq feet

Under 2,500 sq feet



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

• ―Allof the above are part of the issues we are dealing with; however distressed properties have establishedthe values leaving arms length sales difficult to put together .‖

• ―Buyersare waiting until market turns around.‖

• ―Fearof making a move .‖

• ―Lackof demand .‖

• ―Lackof farmland for sale on the market .‖

• ―Potentialbuyers still riding out the storm .‖

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


%

%

%

%

%%

%

%

%

%

%

2011.Q2 2011.Q1

REALTORS ® Most Pressing Challenges

Other

Pricing Gap between Buyers andSellers

National Economy

Local Economy

Financing

Distress

Inventory



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6

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


Legend-100% - -50%-49% - -25%-24% - 0%1% - 25%26% - 100%Data not available

Sales Volume Compared with Previous Quarter (Based on the overall level of commercial transactions for the second quarter of 2011)(Based on the overall level of commercial transactions for the second quarter of 2011)

DC: 50%



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Sales Volume Compared with Previous Year (Based on the overall level of commercial transactions for the second quarter of 2011)(Based on the overall level of commercial transactions for the second quarter of 2011)

DC: 0%



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8



Legend-50% - -15%-14% - -10%-9% - -5%-4% - 0%1% - 33%Data not available

Sales Prices Compared with Previous Quarter (Based on the overall level of commercial transactions for the second quarter of 2011)(Based on the overall level of commercial transactions for the second quarter of 2011)

DC: 0%



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9





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10



Legend-35% - -15%-14% - 0%1% - 15%16% - 35%36% - 50%Data not available

Expected Inventory Availability for the next 12 months(Based on the overall level of commercial transactions for the second quarter of 2011)(Based on the overall level of commercial transactions for the second quarter of 2011)

DC: 0%



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11



Legend-50 - -10-9 - 01 - 1011 - 5051 - 138Data not available

Expected Cap Rate Movement for the next 12 months(in basis points)

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

DC: 15



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12




Leasing Activity Compared with Previous Quarter (Based on the overall level of commercial transactions for the second quarter of 2011)(Based on the overall level of commercial transactions for the second quarter of 2011)

DC: 20%



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13




Rental Rates Compared with Previous Quarter (Based on the overall level of commercial transactions for the second quarter of 2011)(Based on the overall level of commercial transactions for the second quarter of 2011)

DC: 0%



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14




Level of Rent Concessions Compared with Previous Quarter(Based on the overall level of commercial transactions for the second quarter of 2011)(Based on the overall level of commercial transactions for the second quarter of 2011)

DC: -5%



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15




Direction of Business Opportunities Compared with Previous Quarter (Based on the overall level of commercial transactions for the second quarter of 2011)(Based on the overall level of commercial transactions for the second quarter of 2011)

DC: 15%



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16



Legend-100% - -50%-49% - -25%-24% - -10%-9% - 0%1% - 10%Data not available

Volume of New Construction Compared with Previous Quarter (Based on the overall level of commercial transactions for the second quarter of 2011)(Based on the overall level of commercial transactions for the second quarter of 2011)

DC: 0%



JULY 2011


The REALTORS® Commercial Real Estate Quarterly Market Survey asks participants tocomment on current challenges and difficulties in their markets. Below are a few of thecomments about the latest quarter environment.

Activity is up over last quarter and the last two years. Deals are small and short term.

After 38 years in the business, 30 in commercial, this is a tough market to navigate in right now. I have done consulting,offered incentives, reductions and Buyer or tenant incentives to move the inventory. While the income is almost the same todate, I do have more sales on the books and most likely will close them year end. SO, all and all, it looks like we are comingout of the deep sleep and moving forward in 2011.

Airport area industrial real estate began taking a big leap in the 2nd quarter.

Although improved since 2009 the majority of sales are foreclosed and short sale properties which have greatly impacted pricing through all market segments.

As vacancies rise and valuations fall, it is difficult to identify potential investors who want to take the risk.

Businesses seem to feel more optimistic but nobody is making any expansion plans in any way.

Buyers / Tenants are looking for great deals. All my recent deals have been distressed / Bank ORE.

Buyers cannot get financing. Most sellers are not willing to reduce their prices by 50%.

Commercial market extremely depressed, very sensitive to lack of direction & poor administration by our national government.Commercial buyers have a wait & see attitude!

Commercial sales are still not at their lowest point. New entrepreneurs are very unsure about purchases or long-term leases.Mature entrepreneurs are trying to sell and get out because of uncertain national economic policies and regulations.

Credit markets have virtually collapsed allowing only a few rare purchases to get done.

Current market is stronger than the options you afforded us to choose from. Its not all negative

Difficulty in obtaining financing is number one concern.

Financing again holds back business expansion depressing the real estate market.

Getting financing is a real issue. The banks say they are lending but it seems that when buyers approach them, there is littleto lend.

Government must stay out of financing/rent control market and allow private sector to adjust according to free marketdemands.

I feel that we have a combination of weak buyer demand and quality properties being introduced to the market. Financing isinfluencing the buyer side and on the seller side I feel is effected by the economy and demand for replacement sites andexpansions.




JULY 2011


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

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I sell mostly Hotels and Multi Family in the Miami Beach area. Europeans are buying up (mostly Italians) are buying up justabout every multi Family property on the market. 8to 30 units) I also specialize in Boutique Hotels. Income in most Hotels isup and owners are holding back from selling. Prices per key are on the rise. Some recent sales for 3 star limited service

properties have closed for $200,000 a key where last year $185,000 was the number. The same with Multi Family. Most of theowners are mom and pop and are holding on for the good times to come back when they are basically here with the influx ofSouth American and European money. Euro is driving the Europeans and putting money in the US is driving the south

Americans.

In our market there is no investment property available except vacant property. No loans except SBA. I have had to move themajority of my business from sales to leasing.

It feels like the worst is yet to come!

It is down all over in Dallas Ft. Worth.

JOBS are a must to get Phoenix back on track

Little or no change. the gap between buyers or lessees remains a huge negative in the market place. the other major factor islack of financing. the interest rates being paid by banks acts as a deterrent for the sellers who have no choice other than to tryand do a 1031 exchange which would be fine if they are not looking to retire.

Looking up. Rates have stabilized in Atlanta, and we are hopeful that we will soon see an increase in rents and a decrease in

available space. However, I am fearful of the potential US Loan Default and the effects that it might have on our nationaleconomy, interest rates, liquidity, etc.

Many apartment investors believe that the market has bottomed out. There is the least amount of distress in the 5+ unitapartment market because of the original loan requiring 25-30% down, the lack of secondary financing and the ability to rentapartments even in a down market, although possibly for a lesser amount. Investors are comparing 5+ unit properties to otherinvestments and realize, with proper management, the return can be much greater.

More clients indicating interest in purchasing, however, very difficult to negotiate price with purchaser and seller.

Multifamily has been strong with CAP rates based on condition and location. Possible positive cash flow with current pricing.Industrial has continued to decline with both sales and lease costs. Seller concessions including multi-month free occupancyfor 2+ year lease terms.

National , State, and local governments are the biggest problem. They hinder commerce due to their overregulation, waste,and loopholes (bribes- corruption).

National economic outlook is so bad with huge debt, threat of taxes, risk of collapse, increased regulations including carbontaxes, unionization, health care, that buyers only want a "deal".

National politics play a major role in major decisions. Attitude counts.

Need employment at all levels to increase!!




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New banking transparency rules will likely reduce the practice of "extending and pretending" which will increase dispositionactivity.

Office market continues to suffer due to lack of job growth. Traditionally very stable, my SMSA has low unemployment, buthas fewer jobs and a smaller work force than in the period of 2003 - 2008; so lower demand for office space.

Office segment still suffers from oversupply of recently constructed spec space. Demand for space is weak by historicalstandards. Overall, the local office market is as weak as has ever been seen.

Our market is stable with exception of a lack of inventory in most desirable areas as a result of banking / financing restrictions.

Sellers still have to come down to unload their inventory. I have a lot of buyers but they are not willing to pay the current prices. Banks also need to hire commercial practitioners to handle their foreclosures, not residential agents.

Small businesses are having a difficult time. Sales have been decreasing for 18 months. Small business has cut expenses tothe bone. Little margin for error.

Tenants & Buyers are becoming more knowledgeable and less agreeable to existing terms

The commercial real estate economy appears to be "locked up". Buyers are non-existent. Sellers are not realistic. Tenantsare going away, out of business. Landlords are willing to make deals, but no one there to make them with. Bad

The Commercial Sales and Lease inventory in the Santa Clarita and north San Fernando Valley has drastically increased.There are vacancies everywhere. The building I had for sale was reduced by $800,000 and it still did not sell. The owner hadto lease the building for it would not sell. We had to reduce the lease amount from $3.00 per square foot down to .85 cents

per square foot to finally attract a tenant.

The current bickering in Congress is just another negative that becomes an excuse for the business world to ride it out andnot go forward with real estate decisions with all the uncertainty looming.

The current commercial market is experiencing a huge challenge between seller and buyer expectations and topped off withunavailable financing for some products.

The current market is as bad as 2009-2010.Bankers are giving lip service they have no intentions of financing main street, America! Buyers are waiting for price to go lower and sellers are mad and don't want to negotiate--so, what's left?

The lack of direction in the federal debt and certainty of the tax structure has business on HOLD.

The land market in AZ is really flat. No financing available for anything over 10 acres. Buyers used to use a home equity lineof credit for some purchases and that is no longer available. Prices have dropped back to about 2001 levels. Excess inventorycompounds the problem further. Buyers are more cautious than ever.

The lenders are killing our industry, even if they want to lend, their paper work and requirements plus the time it takes them tomake a commitment is just too long and absurd to work with. Were are our private investors?

The market if becoming busier - Lots of people looking for new business or to move from old location




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The market in general is in a state of flux in that owners want to sell but buyers typically are having difficulty in complying withany terms of a loan that might be available. And - until the overall economy gets better and people go back to work / are nolonger under the fear of losing their job - the real estate market - commercial and residential will remain so.

The market is distressed property as buyers are seeking opportunity and many are all-cash buyers

The National Economy is a huge looming shadow over the entire dynamics of either lease or sale. Shadow inventory isgrowing, because the market is weak and sellers will not list their property and risk becoming stigmatized when it sits on themarket too long, and often can not lease because of circumstances. It then becomes a stalemate between buyers & sellerscaused by the perception of the economy. For leases in Center City Philadelphia, there is NO ADSORPTION, what isobserved is simply a shuffle from breaking or renewing leases and moving toward lower numbers.

The 'normal' drivers of the market and the economies have suffered over the past two years and continue to do so.Unemployment is still dragging down the activity of sales and leasing in most markets. Financing is also a major hurdle toovercome as well as hesitation from prospective buyers and lessee's. The current business climate with regard to taxation isunfriendly both on a micro and macro level. I believe until this current national administration is voted out, hiring and CREactivity will remain flat. Here in NJ the current admin is trying to create more friendly business environments, but it has a wayto go to gain the confidence of local business owners and corporations.

The State of Illinois government is the largest consumer of office space in the market. The processes employed by thegovernment to drive down prices through predatory competitive bidding has caused a maelstrom in the market. Landlords are

pressured to lower prices and provide concessions or face vacancy. This in turn has empowered non-governmental tenants to

do the same and has caused incredible erosion of net effective rents in the office market. The resultant effect has caused property value erosion in privately held real estate and thus an incredible depletion in the property tax revenue stream, whichsupports local public schools and other taxing bodies.

The uncertainly created by this President has hindered growth!

There are so many business people & companies that want to do something...buy, sell, lease, expand, etc. Selling prices andlease rates are reasonable. The major, major stumbling block to this industry is the lending. No banks are willing to doanything (if at all reasonable).

There is a lack of quality office buildings for sale. There are buyers out there for well maintained buildings (regardless of theirvacancy) but buyers seem slow and not very motivated to move on foreclosed or distressed properties (mainly because thereare so many properties like that available.)

Too many properties with low cap rates. Return must be better to attract buyers.

Trees grow at a fixed rate over time. Wood prices are down because the building market is dead. Some landowners areforced to sell in a down market.

U.S. - Mexico Border Market seems to be more attractive to the big box and medium size VALUE retailers due to strong sales production of these markets. Our challenge is that we are in a small market and retailers are not as easily convinced to locatein these markets.

Uncertainty in the marketplace is still holding people back as well as lending requirements .




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21

User demand due to national and local economic recession continues to suppress transaction volume. Credit is available forowner occupied properties, but demand for credit for legitimate expansion is hindered by the economy.

Very slow recovery. Limited inventory of quality property.

We are seeing increased investment activity due to pent up demand to both place money and to sell.

We are seeing slight increases in job formation by small and start up companies but they are not significant numbers. Until ourconstruction market rebounds and hiring takes place no big improvements will take place. There is still too much uncertaintyfor the average small business to make any big moves and there is still too much local, state, and federal regulation.

We see a significant amount of properties with maturity debt that are not refinance able -- we expect a big increase indistressed debt and troubled assets.

We see the market getting stronger, Finally.

Well, in many way's it's hard to find deals that someone will buy and close on. The price disconnect and lack of listings thatare priced well is the challenge.

When the economy is bad so is the rental market. There are a lot of potential customers, and a lot of inventory to choosefrom. I have had 20 showings on the office space I have listed for lease, but no one signing a lease.

With the current anti-business environment, I.E. workman's comp, business fees to comply, work statues, healthcarecompliant, taxes, and the limited cash producing business with a history of profitability, commercial RE will continue to wane.

Without lender cooperation I don't see any movement in the commercial market.

Working with a lot of distressed properties, associated with FDIC loans bought by a capital company, now putting on marketand they are starting to sell. These are subdivisions, selling at prices at 70% below the peak of the market.




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NATIONAL ASSOCIATION OF REALTORS ® RESEARCH DIVISION

The Research Division of the NATIONAL ASSOCIATIONof REALTORS ® produces the Commercial Real Estate

Outlook, a quarterly report forecasting commercial marketfundamentals. The Research Division also issues theannual Commercial Member Profile, detailing the businessand demographic characteristics of commercial members.

Additionally, NAR Research examines how changes in theeconomy affect the commercial real estate business, andevaluates regulatory and legislative policy proposals fortheir impact on REALTORS ®, their clients and America’s

property owners.

If you have questions or comments regarding this report orany other commercial real estate research, please contactGeorge 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 Q2 Commercial Real Estate Market Survey

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