Southern California Office Real Estate Blog

EXPENSIVE RENT V.S. CHEAP RENT IN THE U.S.

EXPENSIVE RENT V.S. CHEAP RENT IN THE U.S.

California cities have among the highest rents in the country, claiming four of the top rental prices for the nation’s 40 largest metropolitan statistical areas according to the U.S. Census Bureau’s 2008 American Community survey.

San Jose has the most expensive lease rates in the country with renters paying an average of $1,314 a month; the area just north of San Francisco is second at $1,210; and our beloved Los Angeles, it’s a relative bargain at $1,101. So says

California rents even beat out those in New York, which has the seventh-highest rent of any major metropolitan area. But Thomas Davidoff, assistant professor at the Haas Real Estate Group at the University of California, Berkeley, says the differential between high and low rents in California is much less dramatic than in New York.

“Nothing in California matches rents in Manhattan, but in New York if you factor in Brooklyn, rents get lower,” says Davidoff.

Signing a lease in Miami and Orlando fetched monthly rents of $1,031 and $981 respectively.

“Miami and Orlando were two pretty hot areas when the housing market was raging for conversion of apartment stock into condominiums,” he says of the mid-decade housing boom. “So that reduced supply.”

The survey looked at renter-occupied units paying cash rent, and defined gross rent as the contract rent plus utilities, if utilities were paid by the renter.

On the affordable end, cities such as in Cleveland and Pittsburgh, where the slumping job market has lead to rent rates of $678 and $608. Pittsburgh has struggled to rebuild its economic base after the loss of its steel industry, and residents are leaving the city.

“The bottom line is that Pittsburgh is undergoing a sea shift in its economic base,” says observes Davidoff.

Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School. “Rents are relatively low because it’s in a state which is losing population, and it is simply not doing well.”

Rust belt cities like Cleveland, Cincinnati and Columbus, Ohio, still have low rents compared with the rest of the country. Even though, according to the U.S. Office of Policy Development and Research, apartment vacancies are limited because of a lack of new construction, a rental home in Cincinnati will still cost only around $652 per month.

THE HISTORY OF THE FINANCIAL BUBBLE

THE HISTORY OF THE FINANCIAL BUBBLE

Allegedly, the first recorded speculative financial bubble occurred in the Netherlands in the 1630s when, according to Wikipedia, tulip contracts sold for 20 times the annual income of a skilled craftsman. When tulip prices came crashing down so did the economy, according to reports that have not been sufficiently documented for historians to conclude exactly what occurred.

sources:

http://www.flickr.com/photos/jimg944/2229214461/

http://www.inman.com/news/2008/10/23/dutch-toughen-downturn

OFFICE MARKET CONDITIONS

OFFICE MARKET CONDITIONS

When CoStar makes an announcement, it’s worth listening to. The company, one of the leaders in office leasing recently released a consensus opinion of the office real estate market:

Optimists had hoped to counter depreciation from rising cap rates with rising property net operating incomes (NOI). But the lackluster economy dashed those hopes. Instead of rents rising or at least holding steady, owners are resigned to deteriorating leasing, rife with concessions and tenant inducements.

http://www.costar.com/News/Article.aspx?id=41A9DE2D4E098EDEFBB56A05FBBB79A3

THE EXPERTS SAY BAD MARKETS CREATE GOOD OPPORTUNITY

THE EXPERTS SAY BAD MARKETS CREATE GOOD OPPORTUNITY

Experts say…2009 will bring good values for investors. According to Moody’s/REAL Index, commercial values have declined 12% from their peak in January 2007, and the general consensus is that there is still a ways to go.

“Cap rates are going straight up, with the low end at eight and the high end at 10, depending on the asset class,” noted Thomas Wood Jr., president of Thomas D. Wood and Co., at the recent Urban Land Institute conference. “I think we lose 15% to 20% value in 2009,”

The Jones Lang LaSalle’s Fall 2008 Cross-Sector Survey, which was conducted at the ULI conference, surveyed 100 commercial real estate experts – and optimistically less

than half of those surveyed foresaw a decline of zero to 30% in 2008.

More than two-thirds of respondents predict multifamily investments will decline by zero to 30% in 2009.

“What this tells us is that 2009 will be a prime year for opportunistic investors hoping to procure distressed assets,” says Jack Minter, managing director of investment sales at JLL. When asked when they expect the debt markets to regain equilibrium, 62% of respondents to the survey said it would take at least a year to reach stability.

http://www.globest.com/news/1279_1279/florida/174898-1.html

NEW MARKET TERMS

NEW MARKET TERMS

We get lots of interesting email…this one, from Sanddra ay Costalife Services rollover@costalifeservices.com  gives us a chuckle…

BULL MARKET — A random market movement causing an investor to mistake himself for a financial genius.

BEAR MARKET — A 6 to 18 month period when the kids get no allowance and the wife gets no jewelry.

VALUE INVESTING — The art of buying low and selling lower.

BROKER — What my broker has made me.

STANDARD & POOR — Your life in a nutshell.

STOCK ANALYST — Idiot who just downgraded your stock.

INSTITUTIONAL INVESTOR — Past year investor who’s now locked up in a nuthouse.

PROFIT — An archaic word no longer in use.

THE L.A. OFFICE MARKET IS SLOWWWWWWWW…..

THE L.A. OFFICE MARKET IS SLOWWWWWWWW…..

Those in the business of commercial real estate in Los Angeles have noticed a flatlining in office real estate market growth, with varieties and options in favor of the tenant.

Among the pundits’ recent findings:

·         Cresa Partners notes that the class A office leasing market continued to soften in the third quarter, stating, “We are trending toward a tenant’s market in which space occupiers will have more leverage in negotiations with landlords.”

·         NAI Capital sees “a marked softening in the conditions and both sales and leasing activity.”

·         Cushman & Wakefield, which publishes reports for each major geographic area within the region (north, west, south, etc.), finds conditions ranging from flat to weakening in those various areas.

“Like the rest of the nation, Los Angeles County continues to feel the effects of the weakening economy,” notes the Cushman & Wakefield report. “With continued job losses in the construction (-6.2%) and financial sectors (-2.8%), the county lost 16,800 jobs in the last year (-0.4%).”

Cresa Partners reports the class A vacancy rate at 10.5%, up from 10.2% in the previous quarter, with net absorption for the first three quarters at a negative 1.1 million sf. They observed that the “office leasing market will not bottom out until 2010.”

NAI Capital’s report is based on a survey of its brokers, who generally expect that office market conditions will continue to soften into 2009 and effective rents will continue to drop (by 3.6%, on average). On the upside, NAI notes that construction starts are expected to drop significantly, enabling the market to tighten starting in approximately a year and a half.

In its studies of the various geographic regions within Greater L.A., Cushman & Wakefield finds that overall and direct vacancy rates ticked up in the third quarter in the North, South Bay and Tri-Cities (Glendale, Burbank and Pasadena) areas, with West Los Angeles remaining stable at 8.7%. West L.A.’s vacancy was actually down from 8.8% in the second quarter, but it was up from 7.4% in the third quarter of last year.

The uplifting performance of the West L.A. market is not expected to last. Cushman & Wakefield notes that “much of the sublease space that could hit the market in the coming months is still occupied and therefore not yet reflected in its third-quarter data.

Globe St. reports that the report confirms that “Some landlords have quietly dropped rents,” its report says, mostly because year-to-date overall absorption has been negative 531,227 sf.

The original story came from:

http://www.globest.com/news/1273_1273/insider/174884-1.html

INVESTORS STILL LIKE REAL ESTATE

INVESTORS STILL LIKE REAL ESTATE

A survey of more than 1,000 private and institutional real estate investors reveals that the majority are looking to invest more funds in the commercial real estate sector, according to the 2008 Real Estate Investor Outlook, conducted jointly by National Real Estate Investor, Marcus & Millichap and Countrywide Commercial.

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“To see that a majority of investors are still planning to increase real estate holdings and that the percentage is higher than last year is a strong validation that they are separating

capital markets issues from commercial real estate fundamentals,” says Harvey Green, president and CEO of Marcus & Millichap Real Estate Investment Services.

The Investor Outlook survey reveals that 62 percent of respondents plan to increase allocations in real estate over the next 12 months compared to 60 percent in 2006, 69 percent in 2005 and 74 percent in 2004. Only 7 percent of real estate investors plan to decrease their investments in real estate over the next 12 months.

“Investors are going to invest more in real estate because pricing is more attractive and they’ll be able to get slightly higher yields,” says Chris Tokarski, managing director of Countrywide Commercial’s real estate finance group.

Of the investors who plan to increase their real estate holdings, the average estimated

increase is 21 percent.

The theory: “Availability and cost of debt may have changed, but healthy occupancies, rent growth, lack of overbuilding and moderation in prices are the drivers behind the optimism,” adds Green.

Investment sales activity in 2007 is on pace to eclipse 2006’s $356 billion, according to Real Capital Analytics Inc. As of October 1, the New York-based research firm, which tracks all deals $5 million and above, had recorded $356 billion in sales of the five main property types (office, apartment, retail, industrial and hotel).

Respondents have an average of 19 years’ experience in the industry and an average of

$36.6 million invested in real estate. On average, 62 percent of respondents’ portfolios are allocated to real estate.