Positive Signs for Commercial Real Estate in 2011

2/17/2011 | By Carisa Chappell
After U.S. commercial real estate markets showed general signs of stabilizing in 2010, 2011 looks like another strong year for the industry, according to Integra Realty Resources (IRR).

“2010 proved to be a great year for REITs overall, and I predict the same for 2011 with maybe slight corrections in the first two quarters,” said Jeffrey Rogers, president of IRR, during a panel discussion held on February 14 in conjunction with the release of IRR’s 2011 commercial real estate outlook. Rogers said that the economy should benefit from more jobs gradually being added toward the end of the year.

Offices Struggle with Vacancies

One of the common themes throughout IRR’s presentation was that Washington, D.C. and the east coast appeared to fare better in many sectors than the rest of the country.

In the office sector, the east coast is the preferred location for new office buildings, according to Joseph Pasquarella, managing director of IRR’s Philadelphia office. He added that while the federal government’s presence in the Washington area offers stability, other office markets around the country haven’t been so fortunate.

“Most of the office sector is still struggling with high vacancy rates, a lack of buyers and a lack of financing,” he said. In order to combat rising vacancy rates, Pasquarella said many landlords have turned to offering increased rent abatements and tenant improvement allowances.

IRR’s report also stated that cities with diversified industries were less impacted by the downturn in the economy than cities that relied on the financial services and real estate sectors.

Retail Recovery

Many of the retail markets around the country are in recovery mode, according to Ray Cirz, CEO of IRR and managing director of the firm’s New York City office. “The worst is over for the retail market,” he said. “Rent and occupancy rates remain soft, but are improving as retailers begin to look at growth opportunities.”

Cirz also said the east coast has done better than the rest of the country when it comes to retail. In addition, areas with a strong tourism industry, such as San Francisco, Los Angeles and Miami, tended to have the lowest vacancy rates.

Cities with high unemployment, such as Detroit, Sacramento and Syracuse, have suffered the largest setbacks in the retail market, where vacancy rates have been climbing since 2008, according to the report. Nationwide, new retail construction has stalled, IRR noted.

Apartments Still Strong

The apartment sector was the only sector that expanded during 2010. IRR noted that it is usually the first sector to rebound after a recession.

The east and west coasts have been favored markets for investors in the multifamily sector because of job growth, said Patrick Kerr, managing director of the Washington, D.C. office. Nationally, the report noted that 81 percent of the multifamily markets could be classified as recovering or expanding, compared to 9 percent one year earlier.

“The picture for apartments looks good when most of the other assets aren’t looking good,” Kerr said. The fact that apartment vacancy doesn’t have to be directly correlated with job growth plays a role in the apartment sector showing the strongest signs of recovery, according to Kerr.

“More buyers are renting,” he said. “They want to make sure the floor drops before they get into the (home-buying) market.”

Industrial Lags Behind

The industrial sector hasn’t fared as well as the apartment sector and lags behind most of the other sectors in terms of recovery. IRR noted that vacancy rates climbed from 8.57 percent in 2008 to 10.17 percent in 2009 to 10.85 percent in 2010.

Markets that entered the economic slowdown with little speculative construction were also the industrial markets that fared best over the past couple of years, according to the report.

Edward Kerr, managing director of IRR’s Baltimore office, said the impact of the proposed merger between AMB Property Corp. (NYSE: AMB) and ProLogis (NYSE: PLD) on the rest of the industrial sector remains unknown.

COMMENTS

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katies2600 | 2/25/2011 6:06:36 PM
There is a new <a href="http://ccpt3.com/">Cole REIT</a> being offered that specializes in office and industrial real estate. This new REIT seems like a good sign for investing.
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