NorthMarq

MARKET NEWS - October 2012

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Commercial Real Estate Across the USA: A Current View

By Timothy O’Connor, EVP/Regional Manager

The commercial real estate (CRE) industry has struggled since 2008, but historically low interest rates and investors in search of returns have again made CRE a favored investment vehicle. In some ways, it feels like the mid-1990s when we were recovering from the real estate recession of 1990-92. Lenders have returned. Life companies, the GSEs, banks, and a reborn CMBS industry are active.

So where is this money being invested, and what is the health of CRE around the USA? With 33 offices around the country, NorthMarq is well-positioned to view the overall market and comment on its strengths and weaknesses. Here some of NorthMarq’s managing directors from across the country share their views on the state of their local markets.

Greater New York MSA  (Ernie DesRochers, Managing Director, New York City)
New York City’s property sectors began to fire on all cylinders in 2010. Today, all metrics for commercial and residential real estate indicate a strong investment market. Residential rentals and sales are stable to slightly increasing, commercial office vacancy is down to pre-recession levels, and retail vacancies are near all-time lows.

The recovery in the suburbs didn’t begin until 2011. Northern New Jersey, Westchester, Fairfield County, and Long Island have shown signs of improvement across all sectors and most importantly, in the construction of rental apartments. The office sector still has inventory to lease in the NY suburbs as overall vacancy exceeds 15%. The largest industrial market is in Northern New Jersey, and it, too, has shown signs of strength with an overall vacancy rate less than 8%. The retail market is strong regionally as overall vacancy rates are less than 7% with rents stable or slightly increasing. This market fared better during the recession thanks to tight land use controls in the region limiting retail development.

Texas (Ron Reese, Managing Director, Dallas)
The Texas real estate market continues to be healthy relative to other parts of the country. Increases in employment continue to be higher than most of the country, and we are now seeing increases in housing prices and new housing starts in most major Texas markets. The CRE market is seeing increases in both occupancy and rent with the multifamily sector continuing to lead the way. Several developers are either underway with new multifamily developments or have projects in the advanced planning stages. Rents in Class A office and well-located retail properties are on the rise. Industrial continues to be a strong performer in all major Texas markets with overall occupancies over 90% with modest rent growth.

Chicago / Midwest (Sue Blumberg, Managing Director, Chicago)
Midwest markets continue to stabilize. While values have mostly recovered, growth has been gradual but not robust. Multifamily continues to shine, although concern over new units may dampen rent growth. Generally growth is lagging in the suburbs, and some are still suffering. Chicago is more robust than most. The city’s office market has recovered, thanks in part to no new space under construction, and the hospitality market is doing extremely well. Minneapolis is doing well, with St. Louis, Milwaukee, Kansas City, and Indianapolis holding their own. Michigan and Ohio are better than one might think due to the auto industry recovery. Indiana remains stagnant.

Florida (Joel Coykendall, Managing Director, Jacksonville/Orlando)
Florida really separates into a number of separate markets. South Florida’s markets have rebounded well from massive overbuilding of condos, most of which have now been sold or converted to rentals. The office and industrial markets are rebounding with shrinking vacancies. Multifamily is strong with low-single-digit vacancy numbers and new construction underway. In Central Florida, the I-4 corridor from Orlando to Tampa is also improving in all sectors, although retail, while stabilizing, still has a ways to go. CBD office is stronger than the suburbs where 15% vacancy numbers are improving but slowly. In North Florida, primarily the Jacksonville market, new construction in multifamily is occurring for the first time since the recession with as many as 2,000 units planned on the south side.

Southern California  (Rob Hervey, Managing Director, Newport Beach)
The Los Angeles Basin, which includes Los Angeles County and Orange County, has encouraging news in industrial, office, retail and apartment properties. In the industrial sector, vacancy rates are low at 5% in LA and 4.5% in Orange County. Average lease rates are seeing modest growth or holding firm. Retail in the LA basin has also shown positive numbers in terms of absorption and a stabilization of rental rates and occupancy for both counties. In the office market, Orange County has had remarkable absorption over the past eight quarters with the best submarkets like Newport Center receiving the greatest benefit. The overall vacancy rate in the county is a little over 14%, down from almost 16% a year ago. The Los Angeles office market is holding steady with vacancy (under 15%) and rental rates flat over the last few quarters. The apartment market in the entire basin is very strong as a result of the housing crisis. Vacancies have dropped and rents continue to climb. New construction is planned and in progress in many areas. Overall, there are positive signs in all sectors.
 

NorthMarq is on track to produce $9 billion in new deals by the end of 2012 from these and the other 28 markets in which it operates. Visit our website at www.NorthMarq.com to learn more about our activities and to contact your local NorthMarq office.  
 

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