Third Quarter 2008

 

NATIONAL HIGHLIGHTS

Few investors expect problems in the financial markets to ease any time soon.

Debt availability and lending practices are not expected to return to where they were prior to the credit crunch.

Skepticism about the future path of the economy is making investors nervous about investments.

Additional job losses are expected due to stress in financial markets.

Many investors believe that distressed sales will increase in the coming months.

 

OVERALL CAP RATE (OAR) ANALYSIS

Most surveyed markets reported an increase in their average OAR this quarter.

The Phoenix office market reported the highest year-over-year average OAR increase.

An overwhelming majority of Survey participants expect overall cap rates to increase over the next six months.

 

VALUATION ISSUES

The use of rent spikes decreased in a number of office markets over the past year.

Most investors continue to use face rents when analyzing properties even though concessions remain commonly used in many markets.

Market conditions have started to turn in favor of both tenants and buyers.

 

TECHNOLOGY NEWS AND TRENDS

The inability to exchange data between applications was a huge problem plaguing the industry.   

The Open Standards Consortium for Real Estate was formed in 2000.

Since then, the creation and adoption of commercial real estate data standards has accelerated.

 

ECONOMIC NEWS

It is usually hard to predict with much certainty the peak and the bottom of any cycle. 

Real estate signals do not necessarily move together with economic and financial trends.

 

SPECIAL REPORT: UNDERWRITING GREEN BUILDINGS

In many major real estate markets, LEED-certified green buildings have some degree of competitive advantage over conventional non-green buildings.   

The Green Building Underwriting Standard for both commercial and residential application was approved in early September 2008.  

By providing guidance as to an asset’s green attributes, investment practices will evolve to effectively incorporate a green building's value enhancement. 

Understanding an asset’s green profile on a relative scale allows greater market transparency across all facets of the investment decision process.

 

NATIONAL REGIONAL MALL MARKET

The challenges facing the retail sector have prompted numerous bankruptcies and store closings. 

Investors are concerned about rising overall cap rates.

 

NATIONAL POWER CENTER MARKET

Many big-box retailers continue to outperform traditional merchants. 

Many investors are using lower initial-year market rent change rate assumptions.

 

NATIONAL STRIP SHOPPING CENTER MARKET

The bid-ask pricing gap and weak retail fundamentals will keep transaction activity low for 2008. 

The Southeast region of the country remains a strong draw for investors' dollars.

 

NATIONAL CBD OFFICE MARKET

Leasing activity has slowed in many downtown areas. 

Downtown markets that continue to do well include Seattle, Manhattan, and Washington, DC.

 

NATIONAL SUBURBAN OFFICE MARKET

Tenant demand has weakened for both new and expansion space in many suburbs.  

Markets that continue to post overall vacancy rates below the national level include Los Angeles West, Bellevue, and Long Island.

 

ATLANTA OFFICE MARKET

Leasing velocity has slowed in tandem with dragging office-using employment growth. 

In lieu of trading properties, many owners have shifted to ramping up bottom lines on existing assets.

 

BOSTON OFFICE MARKET

This market remains quite strong due to a diverse underlying economy that benefits from growth industries, such as technology, education, and healthcare.  

Investors are being more conservative in their underwriting.

 

CHARLOTTE OFFICE MARKET

This market is holding steady fundamentally, posting positive net absorption in the second quarter of 2008.  

Investment activity has halted.

 

CHICAGO OFFICE MARKET

The pace of leasing activity has markedly declined as tenants rethink their space requirements.  

Large amounts of new supply are a concern for the CBD, where job growth has waned and underlying fundamentals are shaky.

 

DALLAS OFFICE MARKET

The underlying economy continues to surpass expectations. 

New construction persists as a potential threat to the overall health of this market.

 

DENVER OFFICE MARKET

This market is outperforming national vacancy trends. 

Office sales have tumbled to a level not seen since early 2004.

 

HOUSTON OFFICE MARKET

Growth in the energy industry is helping to propel the local economy ahead of national trends. 

The lack of available Class-A space has prompted a wave of speculative office space construction.

 

LOS ANGELES OFFICE MARKET

This market is showing signs of wavering as the region's sagging economic conditions persist. 

The Class-A suburban office market is one of the best performing in the country.

 

MANHATTAN OFFICE MARKET

Underlying fundamentals will face challenges over the near term due to the ongoing stress in the financial sector. 

Investors remain confident about its long-term performance and ability to persevere.

 

NORTHERN VIRGINIA OFFICE MARKET

Beltway locations are faring better than those located outside the 495 Loop. 

The bifurcated performance of this market is apparent in the prices paid by investors for assets.

 

PACIFIC NORTHWEST OFFICE MARKET

This market is expected to weather the current downturn better than most office markets in the country. 

Overall vacancy rates will be challenged by slower job growth.

 

PHILADELPHIA OFFICE MARKET

A lack of new office space completions has helped to stabilize the CBD. 

The pace of CBD Class-A leasing has slowed.

 

PHOENIX OFFICE MARKET

Tenants continue to gain the advantage in the leasing arena. 

Total sublease space significantly increased over the past year.

 

SAN DIEGO OFFICE MARKET

Faltering demand is negatively impacting occupancy rates. 

Most participants believe that market conditions favor sellers.

 

SAN FRANCISCO OFFICE MARKET

A healthy supply-demand balance and diverse economic base should allow this market to bypass a serious downturn. 

Space returned to the market outpaced that of demand in the second quarter of 2008, causing a slight increase in vacancy.

 

SOUTHEAST FLORIDA OFFICE MARKET

Leasing activity and absorption levels are down throughout the three main areas that comprise this market. 

Many landlords are more skeptical about their ability to both retain tenants and lease vacant space.

 

SUBURBAN MARYLAND OFFICE MARKET

Tenant demand has been sluggish. 

The bulk of the new construction is concentrated in Rockville and North Rockville.

 

WASHINGTON, DC OFFICE MARKET