Promus Commercial Real Estate News

August 2011

Has It Been An Ugly Summer?

For weeks now it’s been like watching a tennis match – markets are up, then down, then up again – usually changing by the hour. Stocks in headache remedies were boosted, and the corner taverns have been full of people drinking away their troubles.

So what should we expect in San Diego? It’s hard to say. One report we recently read began “The ice binding the retail real estate market has broken, thawed by super-heated investor interest in grocery story-anchored, grade-A shopping centers.” Another study discussed a local vacancy rate of 14.6%, up from 14.4% in Q1 but down from the 15.3% peak a year ago.”

Perhaps the most interesting figures are actually coming from Business Week Magazine, though, where we’re getting a glimpse of what may be coming our way “as investors move beyond trophy properties.”

Moody’s says Commercial Property Prices Rose 0.9% in June

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It’s Enough to Give You Whiplash…

A recent series of stories in the San Diego Business Journal suggest the commercial market is stabilizing after all. “There’s more transaction activity now than there was a year ago,” observes Alex Zikakis of Capstone Advisors of his search for viable area investments. His foresight appears to be borne out by the UCLA Anderson School’s forecast center, which discovered the San Francisco and Silicon Valley office markets are the most likely to see construction recover first, with Los Angeles and San Diego not far behind.

Other recent items of note include the Cushman & Wakefield report showing signs of slow improvement in downtown retail locations; a major commercial rebound in Rancho Bernardo; and tightening markets in Kearny Mesa and Miramar. Observes Sperry Van Ness/Promus Commercial President Lauri Hines, “Companies are seeing the window of opportunity for these rates start to close, and are striking longer term lease deals while rates are still low.”

But will those 10,000 non-farm jobs impact office vacancy rates more than the shadow market?

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New Apartment Buildings in San Diego County

The city of San Marcos recently permitted its first market-rate apartment development in over six years. Marcus & Millichap reports that by year-end over 1,000 new units will be added to apartment inventory. Furthermore, the Daily Transcript reports developers are continuing to increase production of multifamily housing in San Diego, capitalizing on elevated demand in the rental market. Through July 31, developers have pulled more than double the multifamily permit applications as they did during the same period last year. Multifamily construction is obviously on the upswing.

Low supply and rising rents equal new opportunity…

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Is Commercial Real Estate Going Too Fast?

After a recession that economists have compared in severity to the Great Depression, it should have taken more time than usual, not less, for the real estate market to rebound. So why has commercial real estate taken to the comeback trail so quickly? And could it end up crashing again?

This question isn't just limited to U.S. market, either…

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Buyers Wary of Building Bubble

In its business plan last month, the California State Teachers' Retirement System said its real-estate fund is “concerned some markets have a mini bubble in pricing.” For this reason the fund will target real-estate assets that “are in need of capital infusions to cure short-term leasing challenges,” because they are selling at relatively low prices.

This, according to the Wall Street Journal, is indicative of a larger trend as some of the nation’s largest pension funds start backing away from trophy properties in the most expensive real-estate markets over concerns a new bubble is inflating.

As some of the biggest investors in commercial real estate, pension funds turning their investment strategies away from risky speculative projects and towards “core” properties has potential to significantly impact the larger marketplace.

The Journal reports, “An index of commercial-property values by Green Street Advisors, which is tilted toward high-end and trophy buildings, has risen more than 45% from its 2009 lows and is only 10% below its all-time highs. Although the index has been flat for the past two months, the run-up nevertheless raises questions about whether the surge in prices is getting ahead of sluggish economic fundamentals.”

How will all this impact YOUR business?

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