NAI Global Issues 2012 Global Market Report; 26^th Annual Volume Provides Review/Forecast for 217 Commercial Property Markets Worldwide

The commercial real estate industry demonstrated positive signs of growth of in the first half of 2011, but by year’s end many markets worldwide were coping with the impact of financial uncertainty in Europe and the United States, according to the 26^th annual Global Market Report released today by NAI Global.

Activity was strong in the first half of 2011, as corporate space users took advantage of a global tenant’s market to reduce overall occupancy costs through consolidation and locking in low effective rental rates. However, commercial real estate markets across the globe were weighed down by the global financial crisis in the second half of the year. Most markets are continuing to show signs of improvement, but at a slower pace. However, with limited new construction, markets could tighten quickly should the pace of the economic recovery pick up.

“While the level of optimism varies from market to market, commercial real estate market fundamentals are generally improving,” said Jeffrey M. Finn, President and CEO of NAI Global. “Corporations once again are moving forward on plans, taking advantage of a tenants’ market worldwide to reduce their overall occupancy costs. Investors are beginning to chase yield as they move beyond core trophy assets to the quality opportunistic plays in strong secondary markets. With a tremendous amount of capital amassed on the sidelines, we expect more assets to transact as pricing continues to hold steady.”

Capital markets showed clear signs of improvement as historically low interest rates and high investor demand resulted in significant increases in global investment sales volumes. Cap rates compressed in most primary and secondary markets, as well-capitalized REITs, private equity and institutional investors aggressively pursue yield. With a relative shortage of quality assets on the market, this trend is likely to continue into 2012. Investors are also acquiring large portfolios of loans and REO as financial institutions are placing more product on the market.

While the level of real estate recovery varies from market to market, many markets across the U.S. are showing signs of recovery, as are parts of Asia, Europe and Latin America. However, the continuing uncertainty in the euro zone and the United States is creating a highly volatile global market that is impacting economic recovery in markets worldwide.

“The US economy is well over two years into the most anemic recovery in post-WWII history,” added Dr. Peter Linneman, NAI Global Chief Economist and Principal at Linneman Associates. “With the exception of home prices, all of the key economic indicators are on the ascent from their respective low points, but are at multiple standard deviations from historical norms. Job growth will be crucial for recovery in real estate markets, as jobs are needed to fill vacant space.”

Now in its 26^th year, NAI’s Global Market Report offers insider insight and perspective on market conditions reported by NAI experts on the ground in over 200 property markets worldwide. To obtain a copy of the full report, click here.

Safeway closes old store, opens new store

Safeway’s new store opening today could be the first supermarket in Montana to be Leadership in Energy and Environmental Design-certified.
Located at the northeast corner of 19th Avenue and Main Street, the $12 million, 58,000-square-foot store opens at noon.

“It’s designed to use at least 17 percent less energy than an ASHRAE-baseline building,” Safeway spokeswoman Sara Osborne said, referring to a LEED standard set by the American Society of Heating, Refrigerating and Air Conditioning Engineers.

Amanda Ricker, Chronicle Staff Writer | Friday December 2nd, 2011 – click to read full article

Do you hear that buzz? It’s at Montana State University and the talk is about the proposed student housing, upgrades and amenities. Here are a few stories for you to read while the developers await MSU’s approval.

Developers file preliminary application for student housing community south of MSU

“Developers have filed an informal application to build a modern student housing community and commercial district on 127 acres of farmland south of Montana State University.

Phase one of the project – which makes up about one-fifth of the proposed development – calls for the construction of six three-story student apartment buildings and a community clubhouse west of MSU’s Bobcat Stadium.” Click here for full article  by Amanda Ricker with the Bozeman Daily Chronicle.

MSU aims to build $7 million suite-style dorm to house more students

“Montana State University is proposing to build a new $7 million suite-style residence hall and spend another $8 million to fix up existing dormitories.

To pay off the cost of building one new dorm and upgrading old ones, students’ room-and-board rates would be raised about 1 percent, or $40 per semester, starting in the fall of 2012.” Click here for full article by Gail Schontzler with the Bozeman Daily Chronicle.

Wells Fargo has decreased the amount of commercial property loans held by the next five largest commercial real estate lenders by $1.3 billion by paying about 80 cents on the dollar for the Anglo Irish Bank Corp.’s portfolio. It’s a risk but Wells Fargo has targeted portfolios that are performing loans and are not as likely to bring negative consequences compared to loans made during the peak of the fall.

The details have not yet been released to the public and this information comes from persons briefed on the auction results.

Sources:
JPMorgan, Well, Lone Star Said to Win Anglo Irish U.S. Loans by Bloomberg Businessweek http://news.businessweek.com/article.asp?documentKey=1376-LQJTLQ0UQVI901-2IJCNHKC5G9CPTP7CDPT7B1KFA
Wells Fargo Jumps on Commercial Deals by The Wall Street Journal | Commercial Real Estate http://online.wsj.com/article/SB10001424053111903352704576540793407207006.html

Aaron’s, a nationwide furniture, electronics and appliance store under construction on North Seventh Avenue, is scheduled to open in October.

Hilliard Thornton of Three Forks and his business partner David Lyons of Ennis are building the 7,000-square-foot franchise store on two empty lots between Big O Tires and Ferraro’s Fine Italian Restaurant.

Read more here.

MercuryCSC, a downtown communications company, is listed 16th on a list of 50 best companies to work for in the magazine’s September issue, slated to be out Tuesday.

MercuryCSC employees enjoy a relaxed workplace atmosphere with group yoga, mountain biking and snow sports excursions, a company kickball team called “Who Shot the Serif?” and a company cruiser bike for running errands downtown, according to the company’s website.”

Click to read more.

Here’s a few of the stories that might interest you:

• Gallatin Field Airport expansion opens to praise, but a few miss flights
• Kohl’s bringing more than 100 jobs to Bozeman, holding job fair next week
• RightNow Technologies gets national attention, plans to expand locally
• RightNow announces quarterly earnings are higher than expected
• Bozeman to consider new Safeway grocery
• Safeway webcam tracks sntore under construction

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Safeway, a staple on West Main Street since 1968, will be moving to a new location slated to open in the fall of 2011 at the northeast corner of North 19th Avenue and West Main Street.  The store will contain 57,870 square feet of groceries, indoor/outdoor seating, and Bozeman’s first official Starbucks. It will also be the first LEED certified Safeway outside of the Seattle area.  Estimates are that the employees will more than double.  The building permit valuation is $5,413,445 with the completed project estimated at $12 million.

Bozeman Deaconess Hospital recently began its emergency room expansion which will add 17,300 square feet and the ability to serve 37,500 patients each year, compared to the current design which serves 15,000 patients per year.  The current 10 bed facility will increase to 25 larger, state of the art rooms.  The project is anticipated to take 18 months at a budget of $15 million.

At Montana State University, a $52 million campus renovation and construction project that started in 2009 was recently completed with the addition of the new Animal Bioscience Building, a 40,000 square foot, three story building which is home to the Animal and Range Sciences Department of the College of Agriculture.  Daily progress is occurring at the intersection of 11th and College with the new “round-about” and at 11th and Kagy where the MSU football stadium renovation is well underway.  The MSU Foundation states “The $10 million Bobcat Stadium End Zone Project will feature a new grandstand wrapping around the south end zone and adding 5,200 seats, taking the stadium’s capacity above 17,000.”  The project is expected to be completed by the first home football game of the 2011 on September 10.  Go Cats!

The west corridor of Bozeman has a flurry of activity starting with the construction of Kohl’s Department store.  Their building permit was issued in March, 2011 for a 55,443 square foot building valued at $5,652,968.  The store is at the northwest corner of Technology Boulevard and South 29th in the Bozeman Gateway Shopping Center across the street from the Gallatin Valley Mall.

Further west, on Cottonwood and Fallon, Billion Auto Group is building the Nissan Dealership opening this summer and additionally the Chrysler and GM Dealerships in summer of 2012.  All situated on 38 acres on Automotive Avenue, the Nissan building is 9,569 square feet and valued at $1,020,630.  The two additional dealerships are 59,423 square feet each with values of $3,749,994 per building.

Also on Cottonwood Road is the new Petra Academy, a private K-12 school that is constructing a facility which will encompass 46,132 square feet with a permit value of $7,067,422.  The academic wing is anticipated to be complete by September with the gym and performing arts center to follow.  Alpine Orthopedics is also building a new 10,768 square foot facility on Cottonwood Road which is estimated to be $3.8 million.

Looking at downtown building activity, we find the Bozeman Community Food Co-op recently opened its new 5,000 square foot market and deli in the old Western Drug Building.  The F & H Building is nearing completion on East Main Street on the site that was destroyed in the March 2009 downtown explosion.  Construction has been underway for the past year, with an issued permit for 26,691 square feet, valued at $3,914,605.  Once completed, this mixed use building will house the Rockin’ R Bar, Sideline Grill, and Santa Fe Reds among other businesses.  The R Bar and Sideline Grill are on schedule to open by July 26th, and Santa Fe Reds will follow mid-September.  And, just across the street, First Security Bank completed a major exterior and interior renovation including a new drive-up facility.

Scheduled for completion in August is the $40 million expansion at Gallatin Field Airport which began in summer of 2009.  The terminal increased from 75,000 square feet to 200,000 square feet. The new facility will have eights gates, doubling the existing airplane capacity.  The first new gate began operating on June 7, with the opening of the entire new terminal, including ticket counters, shops, and security, scheduled for late July.  Gallatin Field served a record 365,000 passengers in 2010.

Recently completed bond issue projects include the $36 million Bozeman High School reconstruction which included about 150,000 square feet of renovated space and 61,000 square feet of new construction.  And, the $33.7 million Gallatin County Detention Center opened in April with the new facility weighing in at 86,508 square feet with the capacity to hold 160 inmates.

Most obviously, these building projects create current jobs and put construction industry workers back to work now.  Many of the new ventures are using local general and sub-contractors, which further augments revenue into our community.  The MSU Foundation estimated that the stadium alone will provide over 200 jobs through the course of the construction.  Additionally, many of the described businesses will be adding new permanent jobs to our local economy.  Safeway’s expansion, for instance, calls to increase the employee base by 60 to 70 people.  Enjoy summer 2011 and revel in the sights and sounds of new construction.

Osborne inherited the biggest budget deficit of any leading economy. But the question is: will his plans involving £81 billion of public spending cuts and the loss of almost 500,000 public sector jobs save the country, or push it over the edge into a double dip recession?

The city, primed over recent weeks to expect the worst, received the Chancellor’s news relatively calmly. Certainly we did not see rioting on the streets at the announcement of the rise in the state pension age to 66 for men and women by 2020, saving £5 billion a year.

In total, around £18 billion of savings will come from cutting welfare costs. Local Government took the deepest of the cuts overall, The Department of Communities and Local Government faces a 51% reduction in its budget to £3.2 billion. The cut of 26% in the Local Government Grant to £24.2 billion will have shocked Local Authorities, but no doubt it’s we the public who will suffer with harsh cutbacks predicted in the level of serving provided to none essential services such as parks, leisure centres etc.

Despite the cuts, it’s not been all bad news; the Chancellor has sought to achieve a delicate balance between austerity v stimulus. As promised, Health and Schools spending were protected and the Chancellor found more cash for areas that could boost Britain’s future growth, including investment in science and confirmation that Crossrail, the £16 billion east-west new rail line in London, will proceed.

Certainly for property the effective removal of demand from the Government as a major new property occupier will be doing little to cheer the markets. However with an effective freeze on Government lease renewals for some weeks this has been anticipated and perhaps already built into market sentiment.

The issue remains: how will the rest of the world react to the austerity plans announced by the UK Government? Will the plans announced yesterday in the UK spur other Governments on to grasp the nettle? Only time will tell and in the meantime we must all take our medicine and hope that this is the end of the beginning and there will be brighter times ahead.

-Paul Danks

Based in London, Paul Danks is NAI Global’s Senior Vice President of Corporate Services working with clients across Europe, the Middle East and Africa.