Commercial
Fed Says Commercial Market Less Risky
The risks in commercial real estate loans and securities have “been reduced” and are not expected to threaten the overall health of the financial system, the U.S. Federal Reserve says.
“It appears that worst-case scenarios are becoming increasingly unlikely,” Patrick M. Parkinson, director of the central bank’s division of banking supervision and regulation, testified at a hearing of the Congressional Oversight Panel.
Experts have feared the commercial real estate market would severely damper the economy due to a surge in foreclosures in commercial property the past two years. According to Foresight Analytics, commercial property values have fallen by 42 percent since its peak in 2007.
What’s more, about $350 billion in commercial real estate debt is expected to mature every year through 2013.
But the commercial market is beginning to stabilize. Vacancy rates among office, industrial, and retail properties have stopped rising. Rental rates continue to fall but at a much slower pace. Plus, sales of commercial properties last year were nearly double 2009 levels.
In some markets, commercial-property values have even increased by more than 30 percent from their lows in 2009. For example, last week the Mortgage Bankers’ Association’s former Washington headquarters sold for $101 million, after MBA had sold the building for $41.3 million the year prior.
Experts say that investors are bidding up property values and taking advantage of low interest rates.
Source: “Fed Official: Commercial Real Estate Risks ‘Reduced,’” Dow Jones Business News (Feb. 4, 2011) and “The Outlook: Commercial Real Estate Coming Back, But Unevenly,” The Wall Street Journal (Feb. 7, 2011)
Commercial Giants See Prospects Improving
Commercial real estate is showing signs of renewed life in the form of stronger leasing volume, more property management work, and increased investment sales.
Lauralee Martin, chief operating and financial officer at Jones Lang LaSalle (JLL), remarks, “Once companies believe there is a bottom, they have confidence to make decisions.”
In the months to come, some firms will consolidate and optimize leased space after cutbacks — ideally in better buildings with lower rents. Other companies will buy or sell buildings.
Revenue at JLL and CB Richard Ellis Group suggests commercial property buyers, sellers, tenants, and owners are starting to make more decisions regarding their space. Revenue climbed 18 percent at the former and 23 percent at the latter during the second quarter compared to a year earlier. In addition, both firms rank high in share price gains within Investor’s Business Daily’s Real Estate Development/Operations group.
CB Richard Chief Executive Brett White concludes, “After the recovery gets going and the economy gets its steam, you move into a long-term expansion.” He adds that expansion is when “every quarter is positive in job growth and GDP.”
Source: Investor’s Business Daily, Marilyn Alva (09/24/10)
Commercial Real Estate Yields Spur Investors
Yields on U.S. commercial real estate are nearing a record high compared to Treasury bonds. Many investors take that as a signal to buy property.
Capitalization rates, a measure of real estate yields, averaged 7.22 percent in the second quarter, as calculated by the National Council of Real Estate Investment Fiduciaries. That was 4.29 percentage points higher than the yield on 10-year government bonds as of June 30 and 4.75 percentage points higher than Treasury yields as of Aug. 31.
These returns are near the record 5.39 percentage points in the first quarter of 2009, when the U.S. was dealing with the worst economic downturn since the Great Depression. The spread shrank to less than 80 basis points when commercial real estate prices peaked in 2007.
“The data indicate that real estate is poised for a rebound,” says Gerardo Lietz, who advises pension funds on property investments.
Source: Bloomberg, Hui-yong Yu (09/01/2010)
Commercial Conditions Favor Business Growth
Commercial real estate sectors, hurt by weak job growth, are offering incentives in many areas that are conducive to business expansion, according to the NATIONAL ASSOCIATION OF REALTORS®.
Lawrence Yun, NAR chief economist, said fallout from the recession continues to impact commercial real estate. “Vacancy rates are beginning to level off in some sectors, but rent discounts and moderate levels of landlord concessions are widespread,” he said. “This is very much a tenant’s market, which is quite favorable for businesses that are considering expansion. It’s also encouraging that there is a modest improvement in the sentiment of commercial real estate practitioners.”
The Society of Industrial and Office REALTORS®, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 600 local market experts, shows vacancy rates are beginning to level, but rents remain depressed, and subleasing space is high.
The SIOR index, measuring 10 variables, rose 2.8 percentage points to 41.0 in the second quarter, but remains well below a level of 100 that represents a balanced marketplace. This is the third consecutive quarterly improvement after nearly three years of decline; the last time the commercial market was in equilibrium at the 100 level was in the third quarter of 2007.
Fifty-seven percent of respondents expect improvements in the office and industrial sectors in the third quarter.
Commercial real estate development remains stagnant in all regions with low investment activity; 88 percent of respondents said it is virtually nonexistent in their markets, but development acquisitions are beginning to grow in many areas in what is described as a buyer’s market.
Looking at the overall market, vacancy rates will shift modestly in the coming year according to NAR’s latest COMMERCIAL REAL ESTATE OUTLOOK. The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by CBRE Econometric Advisors.
Office Markets
Vacancy rates in the office sector, with high levels of available sublease space, are expected to increase from 16.7 percent in the second quarter of this year to 17.0 percent in the second quarter of 2011, and then ease later next year. The markets with the lowest office vacancy rates in the second quarter were New York City, Honolulu and Long Island, N.Y., with vacancies around the 9 to 11 percent range.
Annual office rent should fall 2.7 percent this year and decline another 2.1 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, is projected to be a negative 13.6 million square feet this year and then a positive 22.6 million in 2011.
Industrial Markets
Industrial vacancy rates are likely to decline from 14.1 percent in the second quarter of 2010 to 13.7 percent in the second quarter of 2011, and then continue to ease modestly as the year progresses.
The areas with the lowest industrial vacancy rates in the second quarter were Los Angeles, San Francisco, and Kansas City, with vacancies ranging between 8 and 11 percent.
Annual industrial rent is estimated to drop 5.4 percent this year, and to decline another 4.7 percent in 2011. Net absorption of industrial space in 58 markets tracked is seen at a negative 31.7 million square feet this year and a positive 157.2 million in 2011.
Retail Markets
Harris Teeter in Tysons Corner
Retail vacancy rates should hold steady at 13.1 percent in both the second quarter of this year and in the second quarter of 2011, with a level pattern for most of next year.
Markets with the lowest retail vacancy rates in the second quarter include San Francisco, Honolulu and Miami, with vacancies of 7 to 8 percent. Average retail rent is expected to decline 2.6 percent in 2010 and then flatten out, slipping 0.1 percent next year. Net absorption of retail space in 53 tracked markets is forecast to be a negative 2.3 million square feet this year and then a positive 6.4 million in 2011.
Multifamily Markets
The apartment rental market – multifamily housing – is benefiting from modestly higher demand. Multifamily vacancy rates are likely to decline from 6.0 percent in the second quarter of this year to 5.6 percent in the second quarter of 2011.
Areas with the lowest multifamily vacancy rates in the second quarter include San Jose, Calif.; Pittsburgh; and Philadelphia, with vacancies of less than 4 percent.
With additions from new construction, average rent should slip 0.6 percent in 2010, and then hold even in 2011. Multifamily net absorption is expected to be 105,200 units in 59 tracked metro areas this year, and another 138,000 in 2011.
Source: NAR
photo credit: JohnnyRokkit
NAR: More Credit Needed for Commercial Market
Testifying before a House panel yesterday, Jim Helsel, treasurer of the National Association of REALTORS® and commercial real estate specialist, told members that a strong commercial real estate sector is vital to millions of U.S. jobs and helps keep the national economy afloat.
“As the leading advocate for private property rights, NAR believes it is critical for Congress to act soon and to get capital flowing to small businesses and to the commercial real estate market,” Helsel told the House Committee on Financial Services.
“Lack of available credit remains a significant challenge for our industry right now,” he said. Helsel commended the panel for passage in June of H.R. 5297, “The Small Business Lending Fund Act of 2010,” which ensures community banks have both the incentive and capacity to increase total loans to small businesses. Raising the SBA loan limits and allowing SBA 504 loans to be used to refinance performing property can help ease the liquidity crisis in the commercial sector, he said.
Another avenue, credit unions, could increase available credit to small businesses, Helsel said. NAR strongly supports legislation, H.R. 3380 introduced by Reps. Paul Kanjorski (D-Pa.) and Ed Royce (R-Calif.), which would raise the credit union member business lending cap from 12.25 percent to 25 percent of total assets. Currently, small regional and community banks account for almost half of the small business loans issued in the U.S.
“That has put a significant dent in the credit available to the small business community and has reduced cash flow and elevated vacancies in commercial real estate,” he said. The Credit Union National Association estimates that if H.R. 3380 becomes law, credit unions could extend up to $10 billion in additional business loans and help create 108,000 jobs. Helsel said NAR is strongly urging the Senate to include such provisions when it considers H.R. 5297.
Helsel also said that NAR supports the Senate’s efforts to include more generous depreciation allowances for commercial properties in the Senate bill. “Accelerated depreciation would incentivize new equity investment to commercial real estate, reducing debt-to-income ratios and strengthening income-producing properties,” he said.
NAR also applauds the goals of H.R. 5816, the “Commercial Real Estate Stabilization Act,” to clear troubled properties off the market, and is ready to work with the committee when it begins to review the proposal, Helsel said.
Source: NAR
Commercial Real Estate Said to Turn Corner
U.S. commercial real estate prices rose 3.6 percent in May, according to Moody’s/REAL Commercial Property Price Indices CPPI. This is the second consecutive month of increases – prices were up 1.7 percent in April.
“The positive news of increasing prices over the past two months is tempered by low transaction volumes, forecasts for slowing macroeconomic growth and the rising risk of a double dip recession,” said Moody’s managing director Nick Levidy in a statement.
Prudential Financial executives, speaking at a market outlook discussion, said they were “reluctant optimists” about commercial real estate. “As it cranks up, it’s going to start going pretty quickly in the next three, four years,” he predicted.
Sources: The Wall Street Journal, A.D. Pruitt (07/19/2010) and CNBC.com, Jeff Cox (07/21/2010)
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A Light at the End of the Commercial Tunnel
Observers of the commercial real estate market in California are beginning to see light at the end of the tunnel.
“After eighteen months of pessimism about office and industrial markets we are now seeing indications that, after the markets hit bottom later in this year or early next year, they will follow the pattern of increased non-residential construction coming two to three years after the end of the recession rather than the pattern of a multi-year stasis in this sector,” said Jerry Nickelsburg, senior economist and an author of the UCLA Anderson Forecast.
Optimism is greater in Los Angeles and Orange County, reflecting improving strength in manufacturing, Nickelsburg says.
Source: UCLA Anderson Forecast (07/16/2010)
Commercial Turnaround Likely Next Year
Vacancies are still increasing in many parts of the U.S. and new commercial construction will be sparse this year, Kermit Baker, chief economist for the American Institute of Architects said Wednesday.
“There are a number of factors at play here that are contributing to one of the steepest construction downturns in generations,” said Baker. “We have businesses nervous about expanding their facilities, a fragile financial sector, excess commercial space, and general unease in the international economy.”
He predicted that demand for retail, hotels, healthcare, and recreation facilities will result in a turnaround in 2011.
Source: Los Angeles Times, Roger Vincent (07/14/2010)
Commercial properties in Alexandria VA
Showing properties
1 - 5 of 101.
See more Alexandria Commercial Real Estate.
(all data current as of
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$2,282 : 5350 Shawnee Rd #101, Alexandria0 beds, 0 baths
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$1,500 : 6188 Grovedale Ct, Alexandria0 beds, 0 baths
-
$899,000 : 114 Pitt St, Alexandria0 beds, 0 baths
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$575,000 : 6383 Little River Tpke, Alexandria0 beds, 0 baths
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$480,000 : 641 Washington St #E, Alexandria0 beds, 0 baths
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Commercial Property Dearth Hurts Sales
Only $34.2 billion worth of commercial real estate sales were completed through June – about 26 percent of the usual volume during the first half of the year since 2004, according to Real Capital Analytics.
Demand for properties is hottest in New York, Boston, Washington, D.C., and San Francisco, where both domestic and foreign buyers appear eager to buy more – if more properties were available.
“The problem is more on the supply side than the demand side,” said Dan Fasulo, a Real Capital managing director. “Our investors are regularly complaining there’s not enough quality listings available for purchase.”
Source: Bloomberg BusinessWeek, David M. Levitt (07/07/2010)
Two Paths for Commercial Market in 2011
The commercial real estate market will be split in half next year, divided between “well-located and well-tenanted properties that can generate strong cash flow, and those that are overleveraged with high vacancies,” predicted Urban Land Institute Senior Fellow Stephen Blank.
Blank said properties in international gateway cities will lead the market: Washington, D.C., New York, San Francisco, Boston and Seattle. Other cities likely to enjoy improving commercial value include Houston, Los Angeles, San Diego, and Dallas.
He expects strong properties to increase in value in the “high single digits.” But he believes valuations on weaker properties to “reset 30 percent to 40 percent below 2007 levels.
“Investors with cash could have excellent opportunities to seize market bottom plays by recapitalizing cash-starved owners or buying foreclosed assets,” Blank said.
Source: International Property Journal, Kevin Brass (11/13/2010)
Commercial Real Estate Update
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