I was wondering how things were going with commercial real estate locally and throughout the US. Some posts on this board had offered up that commercial RE follows residential….
Whatever the case, I looked for articles on US CRE and have included a few.
From the first article, there’s this:
“The next commercial real estate market report and forecast is scheduled for release on June 18, and the next commercial leading indicator index
will be released August 20.”
So, we can sit back until after Aug 20 and hope that the information is released and that we can get an unbiased review of it.
But, I definitely wanted to find out what other Piggingtonians have been been hearing.
Thanks, Higgybaby
Leading Commercial Real Estate Index Contracts in First Quarter (forewarning – skews towards NAR… but still some good info)
WASHINGTON, May 21 /PRNewswire-USNewswire/ — Although fundamentals are sound, activity in commercial real estate markets is expected to ease in
the months ahead, according to a forward-looking index for the commercial real estate sectors published by the National Association of Realtors(R).
The Commercial Leading Indicator for Brokerage Activity(1) edged down 0.7 percent to an index of 119.0 in the first quarter from a downwardly
revised reading of 119.9 in the fourth quarter, and is 0.8 percent below the first quarter of 2007 when it stood at 120.0.
This is the third consecutive quarterly dip since reaching a record of 120.5 in the second quarter of 2007. Before that, the index showed
generally positive expansion from the middle of 2003; NAR’s track of the index dates back to 1990.
Lawrence Yun, NAR chief economist, expects somewhat diminished business opportunities for commercial real estate practitioners in the months ahead. “The moderate erosion in the index suggests that commercial activity, as measured by net absorption and the completion of new commercial buildings, will be positive but somewhat weaker over the next six to nine months. Private nonresidential investment in structures is likely to subtract
one-third to one-half percentage point off GDP growth,” he said. “Along with the impact of the credit crunch, a weakening in leasing and building
sales activity should come as no surprise because commercial real estate follows changes in overall economic activity.”
The quarterly decline results from falling employment in the sectors requiring office space, rising first-time unemployment claims, a lower rate
of return as measured by NCREIF (National Council of Real Estate Investment Fiduciaries), and a falling NAREIT (National Association of Real Estate
Investment Trust) price index. In addition, there was a modest decline in industrial production.
Realtor(R) members who specialize in office and industrial properties indicate in a separate attitudinal survey(2) that they anticipate a much
lower level of business activity in the upcoming quarters.
“The job market is weak, but not recessionary,” Yun said. “There are large regional variations, with job growth in the South, while overall professional business service jobs are in the process of a long-term expansion.
“The U.S. is the world leader in the knowledge-based industry, and trade exports are solid – combined, these are solid underlying fundamentals
for positive rent growth and net absorption in the commercial real estate market.”
The commercial leading indicator is a tool to assess market behavior in the major commercial real estate sectors. The index incorporates 13
variables that reflect future commercial real estate activity, weighted appropriately to produce a single indicator of future market performance, and is designed to provide early signals of turning points between expansions and slowdowns in commercial real estate.
The 13 series in the index are industrial production, the NAREIT price index, NCREIF total return, personal income minus transfer payments, jobs
in financial activities, jobs in professional business service, jobs in temporary help, jobs in retail trade, jobs in wholesale trade, initial
claims for unemployment insurance, manufacturers’ durable goods shipment, wholesale merchant sales, and retail sales and food service.
More than 80,000 NAR members offer commercial services, and 60,000 of those are currently members of the Realtors(R) Commercial Alliance, NAR’s
commercial division.
The National Association of Realtors(R), “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members
involved in all aspects of the residential and commercial real estate
industries.
(1)The index was revised minimally back through 2005 due to a comprehensive revision in industrial production data by the U.S. Census Bureau.
NAR reviewed a wide variety of indicators, examined the relationships of indicators that demonstrated a historical impact on commercial real
estate, and modeled a forward-looking index based on historic trends. Although individual indicators sometimes move in opposite directions, together they offer a better indication of future market activity.
Quarterly data for 13 selected series were reviewed back through the first quarter of 1990. The modeling demonstrated a change in commercial
brokerage activity that could be seen two quarters later as measured by net absorption in the industrial and office sectors, and the completion of new commercial buildings as measured by the value of building construction put-in-place of office, warehouse, retail and lodging structures. An index
of 100 is defined as the level of commercial real estate market activity during the first quarter of 1990, the first period to be analyzed.
(2)The SIOR Commercial Real Estate Index is a diffusion index based on a survey of approximately 600 members of the Society of Industrial and
Office Realtors(R) conducted by NAR Research. For more information, contact Richard Hollander, SIOR, at 202/449-8200.
The next commercial real estate market report and forecast is scheduled for release on June 18, and the next commercial leading indicator index
will be released August 20.
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Investors Find Safe Havens In Office, Storage And Retail
BY JOE GOSE
Posted 5/29/2008
Risk-averse investors who want a defensive foothold against economic troubles are stepping into niche properties. They’re taking stakes in self storage, medical offices and single-tenant office or retail buildings.
Commercial real estate historically has provided the security of steady cash flow in tough times. But the specialized properties getting popular lately have extra features appealing to the safety-minded.
“There is a lot of interest (in niches) from buyers right now,” said Hessam Nadji, research director for real estate brokerage Marcus & Millichap. “But they’re being very cautious. Financing is hard to get and people are waiting to see what happens with the economy.”
Self-storage properties tend to thrive in times of change when people move, such as the current housing flux, says Amos Rogers, managing director of Tuckerman Group, a subadviser to the Wells Dow Jones Wilshire U.S. REIT Index Fund.
Single-tenant properties typically provide investors with long-term, credit-rated tenants in a triple-net-lease arrangement, meaning the tenant pays taxes, insurance and maintenance. In return, such tenants typically get lower rents relative to prevailing market rates, Nadji says.
Physicians, meanwhile, tend to stay in medical office buildings for years. That’s especially the case if they’re affiliated with a nearby hospital and have an established referral network with other physicians in their building, says Timothy Pire, managing director of public real estate securities for Heitman, an international property investment firm.
Those traits helped boost medical office demand early this year, despite a capital markets upheaval curbing commercial property deals.
Real Capital Analytics, which tracks transactions above $5 million, counted $1.06 billion in medical office property sales in the first quarter of this year, a 7% rise from the prior quarter and a 1.9% drop from a year earlier. Deal pace waned in April and May. By contrast, office building sales overall plummeted 62% year-over-year in the first quarter, according to Real Capital. Retail property sales dropped 75%, apartment sales fell 40% and industrial sales slid 36%.
Meanwhile, $660 million in single-tenant retail sales were done in the first quarter, up 38% from a year earlier. Prices per square foot climbed from $245 to $290 over that time.
Lender wariness has hurt small investors. Boxwood Means, a Stamford, Conn., firm that tracks sales under $5 million, says sales of apartments in that niche fell nearly 50% to $4.4 billion in the fourth quarter of 2007 from a year earlier. All other kinds of small commercial property sales dropped 38% to $18.7 billion.
“It’s a difficult financial environment for small investors, who have fewer financing options than larger owner-investors,” said Randy Fuchs, a co-founder of the firm.
Small investors have fewer property options, too. Sometimes they can get space housing well-known fast food restaurants at about $3 million, analysts say. But many appealing one-tenant deals are out of reach.
“Small investors generally can’t afford the properties with credit tenants,” said Charles Krawitz, managing director of Key Commercial Mortgage Access, which loans to small commercial real estate investors. “They tend to migrate toward dollar stores and (mom-and-pops).”
Small Investor Strategies
To get in on other deals, small investors partner or invest in syndicates or nontraded real estate investment trusts that buy properties.
Phoenix-based Cole Cos. has such a REIT. It primarily acquires single-tenant, triple-net-lease retail buildings that house brands such as Starbucks (SBUX) coffee shops, Walgreen Co. (WAG) drug stores, and Pep Boys (PBY) auto centers. Cole and its affiliates have acquired assets of more than $284 million this year.
The firm says credit market conditions haven’t threatened its investment model — buying high-quality properties leased to high-quality tenants with healthy balance sheets.
Anticipating property market distress, many buyers are offering lower prices than sellers want. But demand is strong for well-performing properties and fundamentals are still relatively healthy, which is propping up prices, Nadji says.
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