Posts tagged Savannah Office Space
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: firstname.lastname@example.org.
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
New accounting guidelines will immediately impact a company’s balance sheet and could have a negative effect on commercial Tenants and Landlords.
The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board are merging their generally accepted accounting principles (GAAP) with international standards. As a result, public and some private companies will be required to list almost all leases as liabilities and assets on their balance sheets. This includes real estate leases which are currently not listed.
The boards should finalize the standards next year and they could take effect as soon as 2013. The proposed rules would require Tenants to capitalize the present value of all “likely” lease obligations. This could be difficult to forecast because some tenants rents are contingent on escalations that vary depending on sales volume or the consumer price index. Renewal options and right-to-terminate clauses will also be considered.
Lease vs. Own
The lease vs. own question just got a little cloudier. Businesses deduct the full amount of lease payments for tax purposes. Those that own, depreciate a property’s improvements over 39 years. These rules will still apply, but it may make more sense for some companies to purchase real estate if it shows up on the balance sheet as a significant liability anyway.
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.
Tenants should consider re-negotiating or re-structuring existing and future leases now. The natural result will be Tenants pushing for shorter term leases. This will have to be balanced with their willingness to give up incentives or lower rates as the Landlord takes on more risk, especially with an extensive build out.
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