Second Quarter 2008
NATIONAL HIGHLIGHTS
The first half of 2008 has been a challenging transitional period for many buyers and sellers.
Debt availability is down. Economic uncertainty is up.
Due to the bid-ask pricing gap, sales activity has dropped considerably on a year-over-year basis.
Investors are finding it tricky to pinpoint exactly where price levels and overall cap rates now stand.
Strong investment interest is keeping price levels elevated for high-quality, stable assets in top-performing markets.
OVERALL CAP RATE (OAR) ANALYSIS
Nine of our surveyed markets reported an increase in their average OAR in the second quarter of 2008.
An overwhelming majority of Survey participants expect OARs to increase over the next six months.
Washington, DC and Manhattan reported the largest increases in expected OAR growth for the next six months.
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Geographic Information Systems (GIS) and real estate have always had a special bond.
While several sophisticated mapping programs are available for a fee, there are also free services from the Internet.
ECONOMIC NEWS
Changes in elected and appointed government officials eventually result in positive and negative consequences to the real estate industry.
Most economic trends are expected to rebound in 2009 and 2010.
REAL ESTATE CAPITAL MARKETS
Property sales have slowed to just a fraction of a year ago.
Most commercial property investors remain on the sidelines with plenty of capital and are silently plotting their return.
Private equity funds continue to attract capital.
A phenomenon called the �denominator effect� is curtailing some of the capital that pension funds have planned for commercial real estate.
DOMESTIC SELF-STORAGE MARKET
Self-storage operations are stable, and may even be thriving, in markets hurt by the housing crisis and the U.S. economic slowdown.
The pricing distinction between Class-A facilities and all others is becoming more apparent.
Although performances vary by market, supply and demand remain generally balanced.
NATIONAL MEDICAL OFFICE BUILDINGS (MOB) MARKET
The allure of ownership is particularly strong during times of economic distress when alternative investments may not be as appealing.
The dollar volume of MOB sales rose steadily from midyear 2005 to midyear 2007.
NATIONAL REGIONAL MALL MARKET
Owners of recently completed projects could struggle to achieve stabilized occupancy rates.
The expectation that income growth will decelerate has pushed many potential buyers to the sidelines.
NATIONAL POWER CENTER MARKET
Many big-box retailers continue to outperform traditional merchants.
Investors looking to acquire power centers are doing so with much more scrutiny and more conservative underwriting.
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NATIONAL STRIP SHOPPING CENTER MARKET
The desire to own grocery-anchored strip shopping centers remains strong among investors.
After several quarterly declines, the average OAR has trended upward for the past three quarters.
NATIONAL CBD OFFICE MARKET
Fundamentals continue to reflect strength and stability.
In the most dominant CBD office markets, property values are expected to stay flat in 2008.
NATIONAL SUBURBAN OFFICE MARKET
A decline in demand and an increase in additions are expected to weaken fundamentals in the near term.
Stricter underwriting requirements and the inability to easily acquire debt have drastically reduced the number of sales.
ATLANTA OFFICE MARKET
Growth in professional-and-business services, education and health services, and leisure and hospitality are buffering the downturn.
Despite a bid-ask pricing gap, some owners are placing properties up for sale.
BOSTON OFFICE MARKET
Fundamentals, while still healthy, could be in for some unfavorable shifts in the near term.
The average initial-year market rent change rate continues to trend downward.
CHARLOTTE OFFICE MARKET
Four new high-rise office towers are underway in the CBD.
As vacancy remains low, rental rates are inching up for new CBD properties.
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CHICAGO OFFICE MARKET
Untimely additions to supply and hesitancy among tenants to sign deals are stalling this market’s growth.
The amount of space entering the Downtown area represents the largest total since 1990.
DALLAS OFFICE MARKET
In the CBD and suburbs combined, leasing activity was comparable to the level achieved one year prior.
Given the plethora of office space options available to tenants, rental concessions are widespread.
DENVER OFFICE MARKET
Although fundamentals held their own during the first quarter of 2008, economic growth is decelerating.
Persistent upward pressure on vacancy rates is anticipated over the next 18 months as new inventory enters the CBD.
HOUSTON OFFICE MARKET
Even though investors are optimistic about this market’s future performance, caution also exists.
Many investors are impressed at this market’s employment and population growth.
LOS ANGELES OFFICE MARKET
Its long-standing history as a diverse market with a proven ability to weather downturns continues to attract investors.
Additions to supply are making some landlords offer more attractive concession packages to prospective tenants.
MANHATTAN OFFICE MARKET
Amid corporate layoffs and job cuts, this market remains quite healthy.
The amount of sublease space is growing Downtown.
NORTHERN VIRGINIA OFFICE MARKET
An economic slowdown and the delivery of additional new space are negatively impacting market conditions.
Rising vacancy rates and additions to supply are providing tenants with a greater number of leasing options.
PACIFIC NORTHWEST OFFICE MARKET
A solid regional economy and a healthy balance between supply and demand are helping to cushion the local downturn.
Vacancy rates are expected to increase over the next several months due to the delivery of several speculative developments.
PHILADELPHIA OFFICE MARKET
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A slowdown in office-using employment growth has decelerated the demand for office space.
Limited new office space deliveries are in the pipeline for the next two years.
PHOENIX OFFICE MARKET
The strain on the local economy is spilling over into the office market.
Lackluster demand has passed the leasing advantage back to tenants.
SAN DIEGO OFFICE MARKET
Several recent sales involved medical office buildings.
Economic stress and sizeable additions to supply resulted in negative absorption in the first quarter of 2008.
SAN FRANCISCO OFFICE MARKET
With supply outpacing demand, total vacancy increased in the first quarter of 2008.
Property owners are becoming more conservative in their underwriting.
SOUTHEAST FLORIDA OFFICE MARKET
Vacant sublease space has more than doubled in the Miami office market since the first quarter of 2007.
As uncertainties have risen and performances have weakened, this market’s average overall cap rate has increased.
SUBURBAN MARYLAND OFFICE MARKET
Tenants will want more inducements in order to sign leases going forward.
The top-performing submarkets are mostly located in Montgomery County.
WASHINGTON, DC OFFICE MARKET
Two buildings were delivered in the East End submarket during the first quarter of 2008.
In 2007, foreign investors bought nearly ten times as much commercial office space in the District as they did in 2006.
NATIONAL FLEX/R&D MARKET
Continued growth in the high-tech sector is keeping demand space very strong in established high-tech hubs.
Sales are down considerably in both number and dollar volume.
NATIONAL WAREHOUSE MARKET
Restraint on the part of developers should allow market conditions to remain relatively healthy.
Increases in vacant space and tighter lending restrictions have reduced the number of trades throughout the country.
NATIONAL APARTMENT MARKET
Financing is still accessible to apartment investors.
Most investors view supply-side issues as the greatest short-term risk to this sector.
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NATIONAL NET LEASE MARKET
The number of offerings increased on a quarterly basis in the first quarter of 2008.
Sellers sense a strong “flight to quality” among buyers.
NATIONAL DEVELOPMENT LAND MARKET
Development opportunities will be difficult to find in the coming months.
Tighter debt markets and more stringent underwriting standards are not easy hurdles to overcome at the present time.
The supply-demand balances throughout the industry should benefit from development difficulties.
Some of the best development opportunities will likely be in the industrial sector.
Data from: Price Waterhouse Coopers
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