Report Shows DC Real Estate Slowed

A new article from the Washington Business Journal examines a quarterly report released by CB Richard Ellis showing that commercial real estate in the DC Metro area has cooled a bit. The report shows that vacancy rates fell to 12.6% in the second quarter from 12/7% in the previous quarter, while the office vacancy rate little changed at 10%. According to the article, CB Richard Ellis reported that only four of the top 25 deals in the District were with the federal government, and only one government deal over 10,000 square feet was recorded in suburban Maryland in the second quarter, a two-year low.

"While we remain one of the strongest and most stable commercial real estate markets in the country, everyone seems to have hit the pause button as they take a "wait and see" approach," said John Germano, executive managing director of CBRE's Washington-Baltimore region. "We are poised to see improvement in subsequent quarters but not until there is a clearer picture of where the economy is headed and what will happen with regard to the federal government, a key driver of real estate activity here in our region."

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NAR Says Vacancy Rates to Decline, Rent Recovery Delayed

The National Association of Realtors has released its latest Commercial Real Estate Outlook with projects for the real estate markets and indicates that there's a stabilizing trend underway in the commercial real estate markets. From the first quarter of 2011 to the first quarter of 2012 NAR expects that the vacancy rates will decline 0.5% in the office sector, and that office rents are forecast to fall 1.8% this year "before turning higher by 4% in 2012." Lawrence Yun, NAR chief economist, suggested that a pullback in construction is helping to stabilize the market. "Very limited construction of new commercial real estate over the past few years has essentially fixed the supply of available space," he said. "This means vacancy rates could fall quickly from any increase in demand for commercial space."

A summary of the Office Markets outlook:

• Vacancy rates in the office sector are forecast to decline from 16.5% in the first quarter of this year to 16% in the first quarter of 2012.
• The markets with the lowest office vacancy rates currently are New York City and Honolulu, with vacancies in the 8-9% range.
• In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, should be 14.5 million square feet in 2011.

For more news and information visit Blumberg Capital Partners.

Downtown Markets to Recover More Quickly Than Suburban Counterparts

A new Wall Street Journal article titled "Suburban Office Markets Trail Downtown Rivals" takes a look at the recovery and growth of the office markets in different areas, observing that it's likely going to take a longer time for suburban-office-building owners to rebuilt their tenancy rates compared to properties in downtown areas. According to data from Reis Inc., suburban office properties accounted for 70% of the 135 million square feet of previously occupied space that went vacant since the real estate downturn; many owners have tried to fill these gaps by sharply cutting rates to entice new tenants. Victor Calanog, research director of Reis, noted that "combined with more job functions being outsourced or mechanized, demand for suburban-office space will just not be as strong as before, unless landlords lower rents significantly. All of these factors imply lower returns for REITs focused on suburban-office space."

An excerpt from the article:

Fourth-quarter earnings reported by publicly traded real-estate companies over the past few weeks reinforced a trend that has been taking shape since economic recovery began: Vacancies continue to rise in some suburban buildings even as downtown properties fill up.

Downtowns are performing better partly because the suburbs were hit harder by the housing collapse, which caused the closings of mortgage lenders, home builders and other small businesses that tend to be in the suburbs. Also, there was more construction in the suburbs than downtowns during the boom.

Demand in some cities has improved, thanks to their success in revitalizing entertainment districts and attracting new retail and residential development.

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New Report Shows Office Market Growth Trend

Cassidy Turley released a new report this week on the U.S. office market showing a positive growth trend after bottoming in the first quarter of 2010. Kevin Thorpe, Cassidy Turley’s chief economist, said that "the sustained improvement in demand for space, now spreading beyond the largest metros, coupled with tightening vacancy is certainly encouraging. However, the employment situation does not inspire robust projections for 2011. The U.S. economy is on track to build on the growth in 2010, but the U.S. office sector is still a minimum of 18 months away from a balanced market."

The office market showed signs of progress in 2010 as new lease deals added up to 80,000 square feet of positive absorption, compared to a loss of 418,000 square feet in 2009. According to Cassidy Turley, the national office vacancy rate fell 10 basis points in the fourth quarter to 16.7% and average asking rents registered at $21.24, down 2 cents from the previous quarter. The report also shows that 5.3 million square feet of new office space was delivered in the U.S. office market and there was 30.3 million square feet under construction – indicating two more years of limited new supply.

To read the full report, click here. For more news and information visit Blumberg Capital Partners.

NAR Says CRE Market Stabilizing, Vacancies Peaking

According to the National Association of Realtors® the commercial real estate markets are flattening out and appear to be stabilizing. The association expects modestly improving fundamentals in the coming year. "Property fundamentals are improving, investment capital is slowly flowing back into the sector, commercial mortgage originations are increasing, and demand for CMBS issuance is gaining traction," Standard & Poor's said in a Bloomberg report. An excerpt from NAR's office market findings:

Vacancy rates in the office sector, where a large volume of sublease space remains on the market, are forecast to decline from 16.7 percent in the current quarter to 16.4 percent in the fourth quarter of 2011, but with very little change during in the first half of the year.

The markets with the lowest office vacancy rates currently are New York City and Honolulu, with vacancies around 9 percent. All other monitored markets have double-digit vacancy rates.

Annual office rent is expected to decline 1.8 percent this year, and then slip another 1.6 percent in 2011. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, should be a negative 3.7 million square feet this year and then a positive 16.4 million in 2011.

For more news and information visit Blumberg Capital Partners.