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U.S. Office Market Stumbles Through Q4; Ends ‘08 On A Low Note
 BOSTON, MA - The fourth quarter of 2008 did little to bolster the U.S. office real estate market, as year-end was marked by the fifth consecutive quarter of rising national vacancies, according to the Q4 office report from Colliers International, a leading global real estate services firm. National office vacancies jumped 54 basis points from Q3, and registered 14.19 percent at the close of Q4 2008. One year ago at this time, the national vacancy rate stood at 12.6 percent.
This upward trend in vacancy was reflected in both downtown (CBD) and suburban markets nationwide, with vacancy rates at 12.08 percent for downtown markets and 15.19 percent for suburban markets, Colliers said. The continual slowdown in demand for office space underscores a struggling national economy and ongoing contraction of the labor force, as the effects of the credit crisis remain all too palpable, and the nation’s financial implosion shows few signs of abating.
Nationally, downtown Class A vacancy rose from 10.17 percent in September to 11.06 percent by the end of December. In the suburbs, Class A vacancy increased from 14.68 percent to 15.33 percent. Market polling results showed 35 of the 54 downtown markets surveyed by Colliers posted a rise in vacancy, as did 51 of the 56 suburban markets surveyed.
Q4 net absorption, or the change in occupied space, was negative for the fourth consecutive quarter, registering negative 11.70 million square feet (msf). Most of the space was returned in downtown markets, which gave back 7.70 msf collectively. Full-year 2008 absorption registered negative 16.80 msf. Full-year 2007 absorption clocked in at 62.8 msf. The last time annual absorption came in negative was in 2002, when occupied space contracted by 40.1 msf.
Consistent with the last several quarters, new construction continued apace, measuring 18.6 msf of newly completed office space nationwide. Full year completions for 2008 totaled 75.7 msf – more than 84 percent of which appeared in the suburbs. Full year completions for 2007 clocked in at 69.8 msf.
“Many will be disappointed that construction is not falling off more quickly,” remarked Ross Moore, executive vice president and director of market and economic research at Colliers International. “2009 completions are expected to total 72.8 msf, a year-over-year decline of just 2.9 msf – or a 3.8 percent drop.”
Office rental rates dropped off significantly during Q4, with downtown Class A lease rates off their Q3 average, clocking in this quarter at $45.87 per square foot (psf) – a 7.1 percent drop from Q3. Stripping out Manhattan, however, downtown rents dropped only 3.1 percent in Q4. Nationally, for the full-year 2008, CBD rents fell 5.6 percent. Suburban Class A rents averaged $28.09 psf, down 1.4 percent for the quarter, and down 2.1 percent for the whole of 2008.
“Rents are clearly facing significant downward pressure,” continued Moore. “To date, landlord/tenant dynamics have entailed landlords balking at lowering contract rents, and enhancing tenant improvements instead. While landlords have agreed to shorter lease terms, this is only a stop-gap measure on the way to significantly lower contract rents. On the flip side, tenants are increasingly disinclined to move office premises, in the wake of corporations’ mounting reluctance to spare scarce capital on relocation costs.”
Commercial Real Estate Activity Continuing To Decline
 WASHINGTON, DC – A sustained lack of credit and the economic slump will depress the commercial real estate market this year, according to a forward-looking index and forecast for the commercial real estate sectors published by the National Association of Realtors®.
Lawrence Yun, NAR chief economist, said all components of the index declined. “The credit crunch has especially hammered down some components of NAR’s commercial leading indicator,” he said. “A lack of commercial credit is a serious threat to the overall economy. The Federal Reserve needs to use the Term Asset-Backed Securities Loan Facility (TALF) to provide liquidity and support for commercial mortgage-backed securities.”
The Commercial Leading Indicator for Brokerage Activity fell 6.0 percent to an index of 109.2 in the fourth quarter from a downwardly revised reading of 116.1 in the third quarter, and is 9.1 percent lower than an index of 120.1 in the fourth quarter of 2007. NAR’s track of the commercial leading indicator dates back to 1990.
The slowing index means commercial real estate activity, as measured by net absorption and the completion of new commercial buildings, is likely to weaken further over the next six to nine months.
The Society of Industrial and Office Realtors®, in its SIOR Commercial Real Estate Index, a separate attitudinal survey of 644 local market experts, also expects a lower level of business activity in upcoming quarters. Ninety percent of respondents indicate leasing activity in their market is down, and vacancy rates are generally higher.
The SIOR index has declined for eight consecutive quarters and is 58.5 percentage points below the 100 point criteria that represents a balanced marketplace.
Given the freeze in commercial credit, investment activity in commercial real estate sectors has essentially halted, while continuing job losses are reducing the demand for space, according to NAR’s latest Commercial Real Estate Outlook.
Realtors® Commercial Alliance Committee chair Robert Toothaker said all sectors are down except for multifamily. “The apartment rental market is more stable simply because home sales are depressed,” he said.
“The stimulus package is designed to create jobs, and that would eventually lead to an upturn in the commercial market,” Toothaker said. “However, we need to quickly restore liquidity to commercial real estate lending so transactions can move forward and debt on existing properties can be rolled over.”
The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by Torto Wheaton Research.
Office Market
Losses in the job market continue to reduce demand for office space. Vacancy rates are projected to increase to 16.7 percent in the third quarter of 2009 from 13.4 percent in the third quarter of 2008.
Annual rent in the office sector is expected to decline 4.2 percent this year following a 0.4 percent dip in 2008. 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 seen as a negative 77.4 million square feet in 2009.
Industrial Market
The industrial sector is now beginning to feel the impact of the global economic slowdown, which is reducing the demand for exports. Vacancy rates in the industrial sector are forecast to rise to 12.2 percent in the third quarter of 2009 from 10.7 percent in the third quarter of last year.
Annual rent is estimated to fall 4.1 percent this year, after declining 0.8 percent in 2008. Net absorption of industrial space in 58 markets tracked should be a negative 148.1 million square feet this year. Because much of recent construction has been built to suit specific needs, many obsolete structures are on the market.
Retail Market
The slowdown in consumer spending has hit retailers hard. The retail vacancy rate will probably rise to 13.4 percent in the third quarter of this year from 9.8 percent in the third quarter of 2008. Average retail rent is expected to fall 9.0 percent this year; it declined 2.0 percent in 2008. Net absorption of retail space in 53 tracked markets will likely to be a negative 49.8 million square feet this year.
Multifamily Market
The apartment rental market – multifamily housing – has held its own as a result of depressed home sales as potential buyers seek rental housing. Multifamily vacancy rates are forecast to edge up to 6.0 percent in third quarter of this year from 5.8 percent in the third quarter of 2008.
Apartment Market Still Suffering Downturn, Though Pace Is Decelerating, According To National Multi Housing Council Survey
 WASHINGTON, DC – Apartment market conditions continue to worsen, though the pace is decelerating, according to the National Multi Housing Council's (NMHC) latest Quarterly Survey of Apartment Market Conditions.
While all four market indexes remained below 50 (index numbers below 50 indicate conditions are worsening; numbers above 50 indicate conditions are improving), they all rose from three months ago. In particular, about half of respondents thought conditions were unchanged in the sales volume, equity finance, and debt finance markets.
“This global downturn has led to the most challenging economic conditions in at least five decades, and the apartment industry is suffering like other industries," noted Mark Obrinsky, NMHC's Chief Economist. "Capital remains difficult to obtain, and the sharp and continuing drop in employment, in particular, is sapping demand for apartments in markets throughout the country."
“Interestingly,” he continued, “despite considerable media focus on the “shadow rental” market, only a slim majority of respondents noted greater competition from condos and single-family rentals than in previous years.”
Highlights of the Survey Results:
- The Market Tightness Index, which measures changes in occupancy rates and/or rents, rose to 16 from 11 last quarter. Nevertheless, 73 percent of respondents said markets were looser (meaning higher vacancy and/or lower rents). While this was the seventh straight quarter in which the index has been below 50, the low reading may partially represent normal seasonal weakness.
- The Sales Volume Index rose from 12 to 30, the highest level in seven quarters. Over half of all respondents (52 percent) noted that sales volume was unchanged from three months earlier, while 43 percent indicated sales were lower. Though this was a far smaller figure than in the six previous quarters, this was the 14th consecutive quarter the index has been under 50 (an indication of declining sales).
- The Equity Financing Index increased from 12 to 29. Forty-seven percent of respondents thought equity financing conditions were unchanged, the highest such response in seven quarters. Roughly the same share (46 percent) considered equity financing conditions worse than three months earlier—also the best reading in almost two years. This was the eighth consecutive quarter with an index reading below 50.
- The Debt Financing Index rose from 26 to 41, with 14 percent of respondents reporting that now is a better time to borrow than three months earlier. That compares with thirty-three percent who think debt financing conditions have worsened. More than half (53 percent) said debt finance was unchanged. This was the eighth straight quarter with an index reading under 50.
In a special fifth question to NMHC’s Quarterly Survey, one-third (33 percent) said such competition was unchanged. Another four percent thought there was less competition, and 11 percent don’t consider condos and single-family rentals to be significant competition for apartments in their markets. A slightly majority, 52 percent, did report more competition from condos and single-family rentals than in previous years.
Lipsey Cites CB Richard Ellis As Top Commercial Real Estate Brand For 8th Consecutive Year
 LONGWOOD, FL - According to The Lipsey Company's latest survey (2009), CB Richard Ellis is the top commercial real estate brand in the country for the eighth consecutive year.
CB Richard Ellis Group, INC (NYSE:CBG), an S&P 500 company is headquartered in Los Angeles. With over 29,000 employees, the Company serves real estate owners, investors and occupiers through more than 300
offices worldwide (excluding affiliate offices). CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and
consulting. CB Richard Ellis was named one of the 50 “best in class” companies by BusinessWeek, and one of the 100 fastest growing companies by Fortune.
Rounding out the survey's top five are:
- Cushman & Wakefield, Inc. operates nearly 100 owned and alliance offices in the
United States with access to more than 15,000 employees globally. With a history of commercial real estate leadership that spans 90 years, Cushman & Wakefield's brokerage and services professionals are the most trusted in the industry, typically involved in the largest, most complex assignments from New
York to San Diego and in major business centers everywhere in between.
- Colliers International is a global affiliation of independently-owned real estate
services firms with 11,000 employees in 293 offices in 61 countries. Through Colliers USA's 99 offices, they offer a broad range of services, including leasing, sales, corporate services, property management, facility management, development and construction. With over 4,400 employees in the USA alone, Colliers is one of the largest and most experienced commercial real estate service providers in the nation.
- Jones Lang LaSalle is a financial and professional services firm specializing in real estate services and investment management. Their more than 30,000 people in 750 locations in 60 countries serve the local, regional and global real estate needs of those clients, growing the company in the process. In
response to changing client expectations and market conditions, they assemble teams of experts who deliver integrated services built on market insight and foresight, sound research and relevant market knowledge. They attract, develop and reward the best, and most diverse, people in the industry,
challenging them to develop enduring client relationships built on quality service, collaboration and trust.
- Grubb & Ellis. With more than 130 owned and affiliate offices worldwide, Grubb & Ellis offers
property owners, corporate occupants and investors comprehensive integrated real estate solutions. Grubb & Ellis and its subsidiaries are leading sponsors of real estate investment programs that provide individuals and institutions the opportunity to invest in a broad range of real estate investment vehicles, including tax-deferred 1031 tenant-in-common (TIC) exchanges, public nontraded real estate investment trusts (REITs) and real estate investment funds. As of June 30, 2008, more than $3.6 billion in investor equity has been raised for these investment programs. The Company and its subsidiaries currently manage a growing portfolio of more than 218 million square feet of real estate.
The Lipsey Compay is a Longwood, FL-based training and consulting firm that, among others, offers a popular course in commercial real estate branding. Each year the firm conducts a comprehensive survey of the top 25 commercial real estate brands.
Global Investment In Commercial Property Falls 59 Percent
 NEW YORK, NY -
Global investment in commercial property fell 59 per cent in 2008 to $435 billion down from 2007’s record total of $1,050 billion. This was the lowest annual total since 2004 with a significant decline in investment from foreign investors. Figures in international property adviser Cushman & Wakefield’s Investment Atlas 2009 (to be published later this month) also predict that volumes will fall again this year, albeit marginally, to around $412 billion.
The largest fall in 2008 was in North America with a 73 per cent drop in investment from $437 billion to $116 billion. As a result North America ceded its position as the top global investment target in 2007 and fell to third place in 2008 behind Europe and Asia.
There were large falls in investment outside of North America, however, with Europe declining 52 per cent to $178 billion (down from $367 billion) and Asia declining 45 per cent to $131 billion (down from $237 billion). Latin America proved to be the most resilient market with investment falling by only 9 per cent to $8.9 billion (down from $9.8 billion). As the world’s most popular investment destination, Europe accounted for 41 per cent of all transactions followed by Asia with 30 per cent.
At a country level the USA accounted for 25 per cent of all global investment at $107.1 billion. China, for the first time, overtook the UK as the second most popular destination with $50.3 billion or 12 per cent of global investment. The UK accounted for 9 per cent or $37.1 billion of investment with Japan and Germany each accounting for around 7 per cent, or $29.3 billion and $28.8 billion respectively.
David Hutchings, head of research, Cushman & Wakefield EMEA, said: “Although virtually all global markets had a decline in investment it’s been the mature markets which have suffered most. Emerging markets now account for 22 per cent of global investment when as recently as 2006 they only accounted for 9 per cent. China is by far the most dominant of these markets but Russia, India and Brazil all increased their share of investment coming in at 15th, 16th and 20th overall.
“It is clear that pricing in many countries at the market peak was aggressive and became divorced from the reality of underlying growth and income that could be produced and sustained. It is equally true, however, that pricing may now be becoming too conservative in some markets, again ignoring the fundamental potential of the underlying market.
“On average, mature markets are now probably at least half way through the pricing correction. Globally however, it is likely to be those countries which fell first that will also be the first to recover. The US and UK markets are likely to be favoured (certainly by the latter half of 2009) and investors are already identifying value opportunities there. We also expect to see a slight improvement in demand in France and possibly Germany later in 2009 and after further falls in activity in the next few months. Latin America may also end the year well if the regional economy holds up as predicted. Asia meanwhile seems set for a further drop in activity this year before values correct sufficiently to draw in more investors. For most global markets in fact, a recovery in activity is likely in the second half of 2009, even though a recovery in performance may largely wait until mid 2010 when rental levels start to stabilise.”
The change in property pricing globally has broadly followed a west to east drift starting in the US and UK and spreading through Eastern Europe, the Middle East and now most of Asia. Recently it has been emerging markets such as Ukraine, Mexico and Russia which have seen the most significant yield increases.
Europe has been most affected by the re-pricing. All sectors have seen substantial yield shifts with Eastern Europe following the West. Shops have suffered somewhat less than offices and industrial but other retail types including shopping centres and retail warehouses are often seeing significant increases.
In North America figures show an average 31 basis point yield shift through 2008 against a 111 basis point increase in Europe. This underplays the true scale of the change in values, however, with only limited transactional evidence. Opinion and valuation based assessments indicate a US yield shift of somewhere closer to 100 basis points.
Latin American and Asian markets remained relatively robust throughout 2008 although by the last quarter the impact of the global downturn was beginning to be felt and yields began increasing.
All commercial property asset classes have been hit by the decline in investment although there have been regional differences. In Europe retail and industrial have taken share from the less favoured office sector whilst in Asia offices saw increased investment at the expense of land and development. In North America sectors reliant on consumer spending such as retail and hotels have been hardest hit but offices increased its market share with a number of trophy assets changing hands. In Latin America retail was also out of favour relative to offices.
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