Signs of Commercial Real Estate Recovery

by David Reinholtz
While the housing and real estate crisis has gained national attention with regard to homeowners and private property foreclosures, one major facet of this economic downturn has been with commercial real estate, and it hasn't had the attention of its private counterpart. Commercial properties have seen a drastic increase in vacancies and this, in turn, has caused lease rates to plummet. This snowball effect put the brakes on many new commercial development projects as well.

Yet, finally, at the start of the new year, there are signs that the commercial real estate market has reached the bottom and is beginning to show some signs of life developing. A recent survey conducted by the Allen Matkins/UCLA Anderson School, indicates that investors and developers are beginning to see the earliest signs of recovery, though these researchers warn that the strongest effects may not be seen until 2012.

The recovery will be geographically specific, depending on the city and the number of new construction projects that had been completed within the past two years. These new construction projects in certain cities have, for the most part, remained vacant or at reduced vacancies, awaiting the full economic recovery. In these instances, these new construction projects may very well stall or delay recovery in these regions. San Diego is a prime example of a city in which recovery may be slower than the national average.

The Allen Matkins/UCLA survey has been conducted on a regular, monthly basis during the most recent economic recession and it has been several months since the survey noted any measurable optimism about future forecasts in the commercial real estate market. Developers and investors generally make their decisions about projects approximately two years before the projects are completed.

The significance of this survey then indicates that since investors and developers are beginning to feel some optimism, then they are beginning to see hope for business recovery and subsequent new projects having businesses willing to lease or purchase space within this time frame. Six months ago, these same investors and developers had a pessimistic view about the future, which meant that unless something changed, the market would continue to remain stagnant or worse, continue to fall.

This new survey certainly indicates that there is a level of interest in future commercial real estate ventures and bodes well for a long-term recovery process. While this survey was conducted throughout Southern California, its effects can be related to other regions throughout the country. The key factor, as previously mentioned, will be the level of new construction that was completed in a region during the past two years.

For example, this survey indicates that Los Angeles will experience a recovery in the commercial real estate market first in Southern California. Its new construction paled in comparison to San Diego or Orange County in recent years. Another aspect to consider is that Los Angeles wasn't a victim of the collapse of as many finance companies as other regions around it, which meant that there are fewer commercial vacancies.

The survey also takes into consideration the recovery of lease rates as well as vacancies. While Los Angeles should recover on all three fronts faster then its southern counterpart, vacancies are expected to improve throughout San Diego and Orange counties. What is still troubling for this region, however, is that while the economic recovery begins, lease rates are not expected to recover until well beyond 2012.

In fact, commercial lease rates should expect to fall further this year before leveling out at approximately 20 percent below their mid-2008 peak. However, according to survey specialist Richard Ellis, vacancy and net absorption should improve in the year 2011. The major factor that much of this improvement relies upon, of course, is overall employment and job growth.

While the nation continues to wait on signs of true recovery, commercial real estate investors and developers are finally seeing signs of a brighter future for the commercial real estate market.

THE INDUSTRIAL REAL ESTATE MARKET IN L.A. IS GROWING STRONGER

In FASCINATING INFORMATION, Trends, Uncategorized, all, statistics |
By Jodi Summers
“This particular cycle has caught us with something we have never seen before. We have been left with a significant amount of industrial space,” observed Ken Jackson, director of sales and acquisitions at Dynamic Builders. “Nonetheless, the demand for industrial space is still strong, he said.”When you are Downtown, and look to the southeast and see the one-story and two-story buildings out there, there are thousands of apparel and general merchandise companies that started there. It shows the huge strength of L.A.”

In 2009, the industrial market had one of the worst years in decades, purchase prices and lease rates reached 10-year lows. The U.S. vacancy rate for industrial properties hit 10.3% at the end of last year, according to the Urban Land Institute. Other firms, such as Grubb & Ellis, peg it slightly higher at 10.7%. Locally, we have always been blessed, as Los Angeles, peaked at 3.3% in the fourth quarter of last year, according to the Los Angeles Economic Development Corporation – up from 2.2% a year earlier.
Now, the industrial property market is slowly returning. “The worst has passed,” confirmed Craig Meyer, a managing director for Jones Lang LaSalle. “We’re clearly at the bottom looking up.”

Major cargo hubs like Los Angeles, Seattle, Kansas City, Houston and Dallas are expected to bounce out of the slump faster than other markets. While Phoenix, Chicago and Detroit are among the cities projected to lag.
Exports are up and manufacturing activity jumped last month to the fastest pace in more than five years. Around the ports of Los Angeles and Long Beach, which together handle about 40% of the nation’s cargo container shipments, sales and leasing activity for industrial properties began rising last summer. Cargo volume posted a 28% annual increase in February, reinforcing the continued strengthening of the industrial real estate market.