Seven out of ten commercial REALTORS® completed a sales transaction 4Q 2011

The majority of our members did business last quarter.  46% of transactions came in at dollar amounts exceeding $500K with 28% of transactions $250,000 or lower, 26% between $250-$500K.  The estimated average transaction rose from $1.1M to $1.2 M in the previous quarter. On the down side, sales volume declined 1% from this time a year ago, and sales prices declines 10% on a year-over-year basis.

Reductions and renewals in rental

Leasing activity rose 2% from 3Q 2011 while rental rates declined 4% from the same time. Office vacancy rates stood at 18.8% while average rental space demand (in office, industrial, retail, multifamily and hotel) for over-5,000 sq. ft. rose to nearly 30% of transactions, up from the mid-20s in 3Q.

Financing: Still very tight, banks not doing what they could

They may have been too big to fail in 2009, but banks are still failing the commercial real estate market today by helping to keep financing as the number one challenge to survey respondents for the second quarter in a row.  Some respondents also reported that a surplus of bank-owned property is keeping prices low and causing a “chain reaction of short-sales” while banks “take an inordinate amount of time to make a decision”.  (If only they had dragged their feet like this back when they all rushed to package and deal all those residential MBS…)

Cap rates: retail leads the pack

At 9.3%, retail property cap rates top the list, with development next at 9.2%, then multifamily at 8.9%, industrial at 8.7%, hotel at 8.6% and office at 8.2%.

New construction state leaders not population leaders

While inventory and vacancy rates are high, new construction (based on the overall level of commercial transactions or 4Q)  is few and far between.  The leading states show this: they’re not exactly a roll call of primary markets: Montana, Massachusetts, New Mexico and Maryland.

Download the entire report here. 

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(Above: A peek inside Facebook’s Prineville, OR server room.)

A great piece in Chicago Real Estate Daily focuses on the issue of datacenters; how they’re leased, bought, valued and provisioned.  Jim Kerighan, who spent three years with Grubb & Ellis as head of datacenters befiore moving to Avison Young this week, says the market for datacenter space is unique and growing.

Why would a tenant want to be in Elk Grove Village versus North Carolina? What would be the factors that would make one better than the other? 

It depends on the client. They will look at their power needs, the cost per kilowatt hour, they’ll look at the various tax incentives that are provided by a municipality whether it be by the state or locally. The larger companies, the Googles, the Yahoos, what is driving their decisions is vastly different than what might be driving a smaller user. 

The bigger companies often have multiple data center sites so they are less sensitive to anything that might be a natural disaster or other type of disaster because they are backed up by other properties around the country. But they are driven by things like the cost of power. Illinois doesn’t charge personal property tax on servers, so that’s a pretty big, important key factor, while other states may provide a discount on the tax on the electrical power and then there are other states that are going to charge less money for power. 

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(Spoiler alert:  The Great Recession is over.  Hooray!)

We tend to take for granted that the leasing of space is the one constant in our business, our one set of assumptions that are safe from change.  Change seems to encroach but not actually threaten —   traditional commercial real estate models have opened up to flexible and temporary arrangements such as pop-up stores, but this is still a development concerning the leasing of physical space.  Can technology possibly remove even that baseline retail requirement?

The answer is yes.

The rise of mobile technology in point of sale support – systems such as The Square that turn any smart phone into full POS systems taking credit cards – has enabled retail business to take place whenever and wherever social media can get the word out.

The ramifications for retail can be huge, and need to be tallied up.  First, the equation of finding and valuing retail space – even as a flexible or temporary sublet – now has to accommodate the options of foregoing rooftop cover altogether.  What was inconceivable just months ago is now a viable option for a prospective tenant.

Leases, too, need to catch up with this new reality – exclusives or other clauses relating to a tenant’s business or hours have not been written with today’s market in mind and need a review.

Finding ways to ride technological waves to profitability is our industry’s eternal challenge. Adding value to space, to research, to branding and to prospects only deserves more stress as the days pass and the old models fade.

8:06 am    Good Morning !  Things are getting started shortly.

8:15 am   Over 1000 people registered for this 10Th annual Commercial Real Estate Conference.  Organizers say it’s pre-recession levels.  Perhaps a good sign.

8:19 am Sam Zell and Debra Cafaro starting their fireside chat.

8:21 am Zell:  “Come clean by the end of ’13″

8:23 am  Zell:  “very little likelihood we’ll see new supply in the next 24-36 months”

8:25 am  Cafaro: “In a market with mixed messages – How do you decide to move forward as an investor, etc?”   Zell:  “Right now, the opportunities are linear.  Always transactions, always opportunity, unique situations” “Pick your spots, have a lot of patience.”

8:29 am  Cafaro: ” Retail thoughts?”  Zell:  “Retail, more than any other form of real estate has a very serious obsolesence (sp?) factor” “Disposable income has modified, hard to see growth in retail”

8:32 am  Cafaro: “We’re seeing you invest in partnership in 200 S Wacker, relatively small – why?”  Zell: ” It was very cheap, and made sense.  That was the only office building that made sense”

8:36 am  Zell: (on office) “We’re in a major downsizing.  There are many multi-national corporations in the US that have more employees overseas than previous.  And there has been no employee growth so…no growth”

8:38 am Zell:  (on hotel) “Hotel business has been largely over-supplied.  Tourism is attractive, dollar is relatively cheap, hotel business in 24/7 cities could benefit from no new supply”

8:40 am Cafaro:  “Multifamily – you love apartments, can you talk about EQR and the multifamily sector?”  Zell: “Have to add in single family market here…I think, American people have adjusted their love affair with single family house.   This dramatic mental change has lead to highest occupancy rates, somewhat unlimited demand….Multifamily business is, at this moment, best part of real estate industry – and will probably stay this way”

8:48 am Cafaro: “International – you’ve invested all over the world.  Let’s stay away from Europe for a second and talk about the Brazils, the Mongolias,….”    Zell:  “Simple answer.  Demand.”

8:50 am Zell ” Beauty of our international focus is where is the demand today and where will it be tomorrow.   Mongolia – enormous resources and geographically closer to China…and their economy is growing at rate of 20%”

8:52 am Cafaro:  “Let’s talk about our European leaders….and real estate”    Zell: “Why would anyone in their right mind invested in Europe?  There is zero or negative growth”

8:54 am Cafaro:  “You feel very strongly about the political environment”  Zell: “We cannot grow unless people are confident.  Destabilization of American economy is very dangerous.  We are the most predictable country in the world”

8:58 am Zell: “US cannot grow until there has been a replenishment of confidence.  This can only happen with the right leadership”

8:59 am  Cafaro: “What would you be leading with to get the economy and real estate market back?”  Zell:  “I would stop all new regulations.  We can’t handle what we have already”

9:04 am Cafaro: “You have truly been an amazing visionary in a way that has benefited all of us.  What do you want your legacy to be?   Zell: “I have always been a man of my word.   Clarity, principled, somebody who was given the opportunity.

9:07 am Zell:  ” I want people to think I thought about things, reflected on them, and had a global view.   And that I followed the 11th commandment:  Thou shall not take oneself seriously.”

9:08 am Cafaro “Thank you Sam”

Mike Eppli, Ph.D. Addresses NAIOP

In his “2012 Economic Forecast…The Road To Recovery” Mike Eppli, Professor of Finance and Robert B. Bell Sr. Chair in Real Estate at Marquette University made a key assumption about the future, charted out the recent past and put it together to conclude “Real estate is the best relative investment for 2012″.

To a standing-room-only Riverway Auditorium in Rosemont, Eppli set down one ground rule – that for the predictions to hold, short term interest rates would need to remain low, such as what the Fed policy appears to be.

“For the foreseeable short term future, that’s what the Fed keeps saying.  There’s not a lot of inflation pressure in the market today.”

Eppli’s preferred commercial real estate sectors for 2012 are apartments and retail.  We’ll take a look at retail and other sectors in later posts.  For now: apartments.

Apartments

Even though growth of households (household defined as that population unit required for rental occupation or home ownership) slowed in the 2000s, current research suggests a nationwide bump in households amounting near 350,000. Against a backdrop of a base 35 million apartments in the US, a pent-up demand for apartment housing is stemming from an oft-discussed trend: After completing school, college students are coming home and staying there – approximately 1.6 million young adults in this situation currently that would under different economic circumstances be in apartments.  As jobs return – and the latest numbers show some recovery there – this demand will hit the apartment market.  What will further stimulate demand, Eppli said, is the fact that the average age of marriage is on the rise in the US, which means that adults are staying in rental units longer than they have historically.  Delayed entries into apartments by students plus delayed exits from apartments into single family homes by marrieds equals heightened demand for rental units.

Professor Eppli had a lot to say about the entire commercial real estate universe.  Stay tuned for more gazing into the tea leaves — as well as some tips on how to put the info to work —  here at The Source.

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The Crystal Ball

It’s January in Chicago at The Source HQ.  The traditional climate may have left us —  very little snow and bitter cold thus far, thank you very much.  But one thing hasn’t changed:  it’s prediction season in the commercial real estate business.

Perched as we are on the edge of a new year, we struggle to get a narrative of 2012 before 2012 happens.  We sample the economic winds and peer into the tea leaves, trying to divine a trend, spot an opportunity, separate signal from noise.  Industry leaders share their outlooks, government agencies publish their data, our personal networks in our markets keep our ears to the ground.  And we pay close attention.

But why, exactly?

It’s one thing to read and follow this stuff, but how exactly might we use it?  That’s not so clear in every case. To hear that your local mall’s anchor tenant is expanding, prompting a friendly neighborhood tenant rep to cocktail-napkin that mall’s numbers and adjust expectations about the coming year’s negotiations – well, that’s pretty direct use of market intelligence.

But what exactly do you do when you hear something more diffuse and abstract, but with no less potential impact to your neighborhood beat?  When such-and-such agency or pundit proclaims a nationwide rise in medical-retail tenants is expected to continue…and that aforementioned mall has no such tenant yet?

This is a question we’re going to be exploring here at The Source this month.  We’ll be looking at a series of predictions, but what’s new is we’re going to be starting a discussion on how to use these predictions to get in front of opportunities, better serve communities and add value to transactions.  Steps to take to put these forecasts to work and make sense of abstract economic signals.

That’s my prediction, anyway.  I might be wrong.

Office property managers, brokers and reps already have a giant task in meeting the needs of clients.  Today, evolving technology is shifting those needs more than ever before. How can we relate these changes to our practice?

One way is to look for how specific technologies change the expectations of users of office space.  Take cloud computing.  When we hear about cloud computing, it’s tempting to write off the trend as something that we on the physical-world side of things don’t have to worry about but the IT guys and gals in the back rooms of large operations do.

As RealComm CEO Jim Young points out in the below video, nothing could be further from the truth.   The rise of cloud computing means, among other things, an expectation of constant wireless access to business applications by way of pad, phone and laptop.  That means that connectivity — “bars” on smart phones — are now a major deliverable for office space, something that today’s college grad workers and tenants can’t — and won’t — do without.

The can of worms this realization alone opens for property managers, brokers and reps is huge.  Are rent level calculations up to date?  And how were these decisions made?

A soup-to-nuts, interdepartmental approach to these questions is counseled by Young in the following video shot at the Atlanta Summit in 2011.  Thanks much to Coy Davidson for posting the video.     

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Image by sibhusky2 via Flickr

A big thanks for reading and Happy Holidays to commercial real estate pros everywhere!  Here’s looking forward to a great and successful 2012 from Baja to Maine, the Cascades to the Everglades.

Speaking of the whole map of the country, we found a cute story about a certain red-suited gift distributor taking their annual tour of the landscape at 30,000 ft.  Ho ho ho!

NORAD Santa trackers have a record holiday

DENVER (AP) – Santa piled up more than presents this year — trackers at NORAD say he also broke records during his global mission Christmas Eve.

Volunteers at Peterson Air Force Base in Colorado fielded just under 100,000 telephone queries about his progress late Saturday, breaking the previous mark of 80,000.

And his NORAD Facebook page approached one million “likes,” compared with 716,000 a year ago.

Volunteers at NORAD Tracks Santa said kids started calling at 4 a.m. Saturday to find out where Santa was.

“The phones are ringing like crazy,” Lt. Cmdr. Bill Lewis said Saturday.

Read entire story here.

Once upon a time, access to listings was the largest missing piece of commercial property marketing.  Today, depending on the market, a decent supply of listings is almost a given on the web.  Nowhere moreso than at CommercialSource.com, naturally.

Solving one problem only gives rise to another.  We have more access to more data than ever before.  What we now need is to know what to do with all those listings.  How do we turn data and information into knowledge and wisdom?

One way to describe a commercial property market research is to call it an effort to watch the flow of things – people, tenants, dollars, attention, construction.  And when we look at markets nationally, we are looking for fixed locations where these flows converge — especially in secondary markets not known for their powers of economic concentration.

Coldwell Banker Commercial’s College Bowl Property Finder is a great example of how to pattern property searches around places of convergence and economic importance in secondary and tertiary markets.

Coldwell Banker Commercial College Bowl Commercial Property Finder

Searching for commercial properties for sale or lease nearby to 35 games in 30 different cities was never made easier than it is here.  Use it for ad hoc economic analysis in dozens of different ways – hospitality analysis, comps, cap rate thumbnails – or plot an investment strategy centered on the economic impacts represented by the bowl games to the surrounding community.

(“Communities” would be more accurate.  In one case, I found this tool’s idea of “nearby” a little optimistic — should the Fiesta Bowl in Glendale, AZ really be listed as “nearby” to 138 miles-distant Flagstaff, AZ?    Then again, better to have too much data than too little, right? )

Tools like CBC’s College Bowl Property Finder will only grow in number across the business as time goes on and the industry continues to find ways of turning listings into gold, saving practitioners time and sparking imaginations across the marketplace.

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