“Consumers grow more confident in economy.” This quote from an Associated Press report on May 30, 2013 reflects the fact that Americans have a more hopeful outlook about the economy than at any other point in the last five years. Home prices are surging, job growth is strengthening and stocks are setting record highs.
The local commercial real estate market has definitely changed (for the better) since my January report. A few years ago I would have said for every step forward, we seemed to take two steps backward. Today I would say that we are taking 3, 4 or 5 steps forward and an occasional one step back. In other words, times (and the market) have improved and are continuing to improve, but a few bumps, or hiccups, remain in the road to recovery. Even so, recovery is the definite “theme” of today.
Some segments of the market are improving faster than others. For instance, available inventory in the office sector has dropped significantly in the past year. We are still doing more lease transactions than sales in the office arena. This may be somewhat attributable to sellers not being willing to sell at new/current market prices, or to potential buyers’ continuing struggles with obtaining new financing. Regardless, deals are happening and available inventory is being reduced.
Current market trends that we have observed:
Warehouse – Slow within all size segments. There is a definite oversupply of inventory in the larger square footages.
Retail – Market has improved significantly, but at price points well below several years ago. Also tenant interest has become very location sensitive. Better locations are showing more positive improvement, while B and C locations are still showing signs of struggle.
Vacant Land – Still a fairly quiet segment of the market. We don’t anticipate significant recovery in this segment until product inventories (inventory of available homes for single family land, office inventory for office lots and/or office development land, etc.) decline further. This is simple “Supply and Demand”. Once inventory levels of existing product drops and tenants/buyers can’t find what they need in the existing inventory, builders/developers will begin seeking out land opportunities to redevelop new inventory.
Farmland, timberland and speculative land investments have seen a slight uptick in activity, but at price points well below several years ago.
Investment Properties – Quality investment properties with solid, sustainable investment returns (and quality tenants) are definitely in vogue, but can be hard to find. This market segment is especially hot for small investors (under $1,000,000) looking for a place to park money. We’ve done several sale/lease back transactions recently where a seller needed the cash but wanted to remain in the location, so we sold the property to an investor and the seller remained as a tenant. Win/win for everyone.
Average tenant sizes (and activity) in the office and retail sectors haven’t changed significantly over the past few years. The average office transaction seems to be within the 2500 to 3000 SF range, and the majority of retail transactions are under 4,000 SF. Unfortunately we do have a bit of a surpluss of larger spaces in both sectors with some recent larger retail boxes becoming vacant, and an above average number of available offices ranging from 8000 SF up to 20,000 SF. These will eventually get absorbed, but it may take a while.
Our advice to clients who are wanting/needing to sell or lease is very similar to what it’s always been… Make sure your property is in tip top condition and presents itself well against competing properties, and make sure you are priced consistently within ongoing market activity. Position your property well (condition and price) and you will see some action. Things have definitely started to move.
Bottom line is that most market segments are improving, but it’s still a buyer’s market and a great time to be a buyer. Now is the time for companies, investors and general buyers to grow their real estate portfolios. Consumer confidence is continuing to improve as buyers realize the market(s) are improving and that we have passed the bottom of the downturn. With interest rates at all-time lows, buyers are realizing now is a great time to act. As I said in my last report, a lot of wealth will probably be created over the next year+ as buyers re-enter the market at current attractive price points.
Absent some new local or global crisis, things should continue to improve and the remaining troubled assets in our inventory should continue to get absorbed. Recovery is here and times are definitely improving. If you’re thinking of buying sometime in the near future, give us a call and let’s brainstorm about current opportunities.
PH: (352) 371-7111 ext. 329
Cell: (954) 551-9846