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Fuchs Assesses Real Estate Market Conditions in CBC Webcast

08,2005
Randy Fuchs

Randy Fuchs offered his views and analysis of commercial real estate markets in his public webcast sponsored by Coldwell Banker Commercial. Several key takeaways of his presentation, Terra Firma: A Foothold for Commercial Real Estate, included the following observations:

  • Sustained U.S. economic growth, employment and continued low interest rates have incubated a turn-around in the property markets, which improved at an accelerated pace during the second quarter.
  • Tenant demand in the Office, Industrial and Retail sectors are all at pre-recession highs. Vacancy rates are ontracting in most of the major U.S. metros for these property types.
  • Suggestions are premature that the retail bull is tiring. Absorption in the second quarter, at 8 million square feet according to Reis, was the second highest in the last four years; and year-over-year rent growth is robust at 3.1%, with almost all major metropolitan areas posting solid rent gains. Boxwood’s Coldwell Banker Commercial forecast is for national retail vacancies to reach 5.8% by year end; if attained, that will be the lowest level in at least 25 years.
  • Property investors continue to bank on these current improving and future market fundamentals. Through June, sales volume for the four major property types was $112 billion according to RCA; 50% more than the first six months of 2004, and 60% of the total volume for that entire year.
  • The Apartment sector remains challenged by single-family home ownership that is at record high levels, as well as competition from the burgeoning condo sector. The silver lining is that condo conversions are taking apartments out of the rental stock; coupled with low construction activity, these two forces are stabilizing the sector and have allowed the national vacancy rate to decline 22 basis points as reported by Reis to 6.5%, within earshot of the 5.8% of three years ago.
  • The national condo craze offers evidence of cooling. While NAR reported that 90,000 condo sales were registered in June - up 11% from this time last year - the months' supply of condos (a key metric of market equilibrium) jumped to 5.3, the highest level in several years.