Time heals all wounds, but how much time is the big question. The bruises of the last few years are still there but, some signs of a turnaround are visible. Here is both a national & local look at 2010 and an outlook for 2011:
Office: National vacancy rates hit a 17 year high, but the 4th quarter was the first time in 3 years more space was leased than vacated. Locally, our office market continues to be soft and like the nation, vacancy rates will remain relatively flat. Limited office leasing produced some moves but few net-new users of any significance. GSA build-to-suits drove development, including Savannah’s first modern-day, Class-A building in the central business district. Slated to open in 2012, 70,000 SF will be constructed facing Ellis Square and house the U.S. Attorney’s office on four of its six floors.
RETAIL: US holiday sales were the best in 4 years. An increase in consumer buying power should lead to modest sales growth in 2011 with discount & grocery retailers benefiting the most. Oglethorpe Mall, nearly fully leased, reported 2010 store sales up slightly compared to a 3-4% decline in 2009. Broughton Street saw mixed results: some store sales were up over last year, but several closings still indicate there is work to be done to invigorate the corridor. Steady tourism improvements also helped increases in tax receipts and hotel occupancies.
Industrial: Vacancy rates peaked nationally around 14.1% & should finish 2011 around 13.1%. That’s far better than the near 20% vacancy rate in the Savannah area. Most large deals, including Coastal Logistics Group’s build-to-suit 320,000SF building and JLA Home’s 689,000SF warehouse purchase, were in some way related to the port. No other speculative big-box development is expected with 12-18 months or more of supply. Several smaller user-warehouses traded hands with an abundance of smaller 1500-5000sf lease spaces sitting vacant.
Multi-Family: Due to a slow economy and financing challenges in the single family housing market, the sector that showed real progress is 2010 was multi-family. US vacancy fell to a 2 year low of 6.6 % and rents rose .5%. The sector does lead in foreclosures due to most loans being underwritten at the height of the market. Locally, occupancy was steady if not grew with limited development activity in the Pooler area. Our multi-family developer clients are pursuing projects so, expect more development next year.
Investment: The target for most investment, top-tier markets have seen average asking prices increase. As of 3rd quarter 2010, Moody’s reported apartments led with a 16% increase from the year prior. Office increased 4.4% while Retail and Industrial fell 12% & 4.4% respectively. Look for continued oversees investment as the US is by far the number one choice of foreign real estate investors. Don’t expect that demand to translate into activity in our market except for very few institutional grade properties.
What to expect: Until we start seeing repeated months of 300,000 new jobs a month nationally & strong improvements in the consumer confidence index, the economy has long way to get back to “normal.” Savannah’s infrastructure and relatively low cost of living is ready and able to support all those retirees that want to move here but can’t sell their homes. The commercial market should make some modest strides in 2011 thanks to the port and manufacturing announcements, but it will be slow and steady recovery into 2012.
NAI Savannah Sponsors Economic Webinar:
Today at 1pm EDT, NAI Global’s Chief Economist and Wharton School of Business professor, Dr. Peter Linneman, will give his quarterly Global Economic Outlook related to commercial real estate. To register, send an email to: email@example.com.
Rex Benton is a Savannah Commercial Real Estate agent with NAI Savannah, the commercial division of Mopper-Stapen, Realtors and is a contributing columnist for “BiS-Business In Savannah” weekly business publication and is an active CRE blogger. www.naisavannah.com 912-358-5600 Office Space, Retail Space, Industrial Space, Investment Real Estate
In spite of a sluggish national economy and skittish capital markets, the outlook is extremely bright for the senior housing industry. While other asset sectors continue to suffer from a lack of liquidity, recent data suggest that high demand and a return of capital to the senior housing market will make for a rich deal making environment in the months ahead.
According to several recent reports issued by NIC, senior housing has weathered the economic downturn better than other asset types and offers a higher rate of return to investors. As of Q4 2009, the senior housing sector generated a cumulative return of 2.7 times its mid 2003 value, compared to the entire CRE sector, which posted a cumulative gain of just 1.5 times its mid-2003 value, according to the National Council of Real Estate Investment Fiduciaries (NCREIF).
Occupancy rates have stabilized while rents continue to grow, albeit slowly. Demand for senior housing will continue to rise substantially over the next few years, as the first wave of the 79 million members of the baby boomer generation have already passed the age of 60. The fact that Americans are living longer has created longer-term tenants and an increased need for facilities that accommodate the expanding needs of seniors. While demand flattened during the downturn, it has rebounded quickly and is growing at a faster rate than it was prior to the recession.
Meanwhile, construction starts for senior housing properties have dwindled over the past 12 months, which means leasing at existing properties will increase as demand from consumers continues to rise. In fact, the NIC reports that new construction for senior housing is down 32% from the same time period last year, while demand is outpacing pre-recession growth rates. Above average returns and the potential for significant growth are attracting a wide base of potential investors, including TICs, private equity groups, national banks and foreign investors.
Of course, not every senior housing project can succeed in today’s economy. Successful senior housing projects require a combination of strong balance sheets and extensive operating experience to be attractive to lenders. Debt capital is readily available for projects that can prove long term value with experienced owner/operators that have a track record of success.
Savvy brokers are taking advantage of these market opportunities and are reaping the benefits. For example, NAI Bluestone recently secured $14.3M in debt and equity financing for the development of the Arbors at Buck Run, an 85-unit assisted living and memory care facility located in Feasterville, PA. The financing was secured on behalf of Capital Health Group, LLC, one of the nation’s premiere senior housing and healthcare private investment companies, and Orens Brothers, an experienced developer and construction management firm with a long track record of successful projects throughout Greater Philadelphia. Despite the fact that the project required re-development capital in today’s challenging construction financing market, NAI Bluestone was able to identify the right debt and equity capital providers who shared its conviction that the sponsorship, project and its market represented a terrific risk/reward opportunity. Our ability to secure debt and equity re-development capital in today’s market proves that capital is available for strong projects, but it requires strong relationships with lenders, experience and a track record of success.
Looking ahead at 2011, we are going to see more and more activity in the senior housing sector. Brokers with strong lending relationships and experienced development partners will be poised to take advantage of this growing market, which will continue to outperform other asset types in the upcoming year.
Matthew McManus is Chairman of Philadelphia-based NAI Bluestone Real Estate Capital, LLC.
Lease vs. Own
Single-tenant building users would benefit the most from ownership and could drive down the demand for leased space. Smaller tenants that are in multi-tenant buildings are more likely to stay put.
Corporations already struggling with debt will take a hit as they record the entire outstanding balance of future rental payments as a liability. Public companies may look weaker to investors by affecting debt-to-equity ratios. It could also affect a business’ ability to borrow or trigger debt covenants in existing finance agreements.
Industries most affected will include: Retail, Professional Services, Transportation and Logistics, Telecoms, Healthcare and Real Estate. Here is a great overview of the new rules: New Savannah Tenant & Landlord Rules
Rex Benton is Savannah Commercial Real Estate agent with NAI Savannah, the commercial division of Mopper-Stapen, Realtors and is a contributing columnist for “BiS-Business In Savannah” weekly business publication and is an active blogger: http://www.savannahcommercialrealestate.blogspot.com/ www.naisavannah.com 912-358-5600 Office Space, Retail Space, Industrial Space, Investment Real Estate
There could still be challenges through 2011 and investment in the sector should be made cautiously, but there are clear signs that multifamily will be the first sector to recover as the economy gets back on track.
Rex Benton is Savannah Commercial Real Estate agent with NAI Savannah, a division of Mopper-Stapen, Realtors and is a contributing columnist for BiS-Business In Savannah weekly business publication. www.mopper-stapen.com 912.238.0874 Office Retail Industrial Investment Real Estate