Commercial Real Estate QUARTERLY MARKET SURVEY November 2011

8/3/2019 Commercial Real Estate QUARTERLY MARKET SURVEY November 2011

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NOVEMBER 2011

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Commercial Real EstateQUARTERLY MARKET SURVEY

Copyright © 2011 NATIONAL ASSOCIATION OF REALTORS ® . Reproduction, reprinting or retransmissionin any form is prohibited without written permission. For questions regarding this matter please [email protected].

THE NATIONAL ASSOCIATION OF REALTORS ® , “The Voice for Real Estate,” is America’s largest trade

association, representing 1.1 million members involved in all aspects of the residential and commercial realestate industries..

Although the information presented in this survey has been obtained from reliable sources, NAR does notguarantee its accuracy, and such information may be incomplete. This report is for information purposesonly.

The REALTORS® Commercial Real Estate Market Survey measures quarterly activity inthe commercial real estate markets. The survey collects data from commercial Realtors®.The survey is designed to provide member Realtors® with an overview of their markets’

performance, sales and rental transactions, along with current economic challenges andfuture expectations. The questions are designed to capture the effects of the existingeconomic conditions on the commercial real estate business. Each quarter, participantsrespond to questions regarding the current demand for commercial properties, price, cap

rates, rental concessions and other economic factors.

2NATIONAL ASSOCIATION of REALTORS ® | RESEARCH DIVISION | www.realtors.org/research



NOVEMBER 2011


2011.Q3 Survey Highlights

• Overall market decline slowed during the quarter.• Sales volume was almost flat, with a decline of 0.2 percent from a year ago.• Sales prices declined 13 percent on a year -over-year basis.• Leasing activity contracted 2 percent from the previous quarter.• Rental rates declined 7 percent compared with the previous quarter. • Concession levels moved up 2 percent on a quarterly basis.• Financing remains at the top of the current challenges list, followed by the economy.

• The estimated average transaction was similar to the previous quarter, at $1.1 million.

3

EALTORS® Commercial Activity – 2011.Q3

ales Volume Compared with Previous Quarter Down 6%

ales Volume Compared with Previous Year Down 0.2%

ales Prices Compared with Previous Quarter Down 8%

ales Prices Compared with Previous Year Down 13%

pected Inventory Availability for the Next 12 Months Up 6%

pected Cap Rate Movement for the Next 12 Months Up 3 bps

ental Volume Compared with Previous Quarter Down 2%

ental Rates Compared with Previous Quarter Down 7%

vel of Rent Concessions Compared with Previous Quarter Up 2%

rection of Business Opportunities Compared with Previous Quarter Down 3%

olume of New Construction Compared with Previous Quarter Down 10%

NATIONAL ASSOCIATION of REALTORS ® | RESEARCH DIVISION | www.realtors.org/research



NOVEMBER 2011


4

2011.Q3 Cap Rates

Office 9.3%

Industrial 5.6%

Retail 7.9%

Multifamily 7.6%

Hotel 7.5%

Development 10.1%

2011.Q3 Vacancy Rates

Office 22.9%

Industrial 20.6%

Retail 17.3%

Multifamily 8.4%

Hotel 18.1%


66%

34%

Did you complete a commercial sales

transaction?

Yes

No

2%

2%

4%

13%

18%

28%

33%

Over $10 M

Between $5 M and $10 M

$2 M and $5 M

Between $1 M and $2 M

Between $500K and $1 M

Between $250K and $500K

Under $250K

Dollar amount of last transaction

0% 20% 40% 60% 80% 100%

1.Q3

1.Q2

Average Rental Space Demanded During Last Transaction

Over 100,000 sq ft

50,000 - 100,000 sq

10,000 - 49,999 sq f

7,500 - 9,999 sq fee

5,000 - 7,499 sq fee

2,500 - 4,999 sq fee

Under 2,500 sq feet



NOVEMBER 2011


• A lack of user demand in the market

• All of the above are issues we have and have been dealing with, daily, for the past 3+ years.

• All of the above plus FEAR of what will happen to economy.

• Appraisals (financing related).

• Demand - there are no buyers or tenants.

• Economic outlook and concern on biz in general.

• Finding the adequate location for National Retailers.

• I have not closed a Commercial Sale in two years, normally about 7-10 million/year.

• No one wants to take a chance with current conditions.

• Unemployment and uncertainty about the future.

• Unrealistic expectations from all parties!


0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

2011.Q3 2011.Q2

REALTORS ® Most Pressing Challenges

Other

Pricing Gap between Buyers anSellers

National Economy

Local Economy

Financing

Distress

Inventory



NOVEMBER 2011


6

State-level data may register large fluctuations from one period to the next due to small sample sizes in some states.


Legend

-100% - -50%-49% - -25%-24% - 0%1% - 25%26% - 100%

Data not available

Sales Volume Compared with Previous Quarter

(Based on the overall level of commercial transactions for the third quarter of 2011)(Based on the overall level of commercial transactions for the third quarter of 2011)

DC: -20%



NOVEMBER 2011


7



Legend

-34% - -25%-24% - 0%1% - 25%26% - 50%51% - 88%

Sales Volume Compared with Previous Year


DC: 0%



NOVEMBER 2011


8



Legend

-28% - -15%-14% - -10%-9% - -5%-4% - 0%1% - 8%

Sales Prices Compared with Previous Quarter


DC: 7.5%



NOVEMBER 2011


9



Legend

-73% - -50%-49% - -25%-24% - 0%1% - 25%26% - 51%

Expected Inventory Availability for the next 12 months


DC: N/A



NOVEMBER 2011


10



Legend

-50 - -25-24 - -10-9 - 01 - 1011 - 25

Expected Cap Rate Movement for the next 12 months(in basis points)


DC: 5



NOVEMBER 2011


11



Legend

-31% - -25%-24% - -10%-9% - 0%1% - 10%11% - 25%26% - 103%

Leasing Activity Compared with Previous Quarter


DC: -25%



NOVEMBER 2011


12



Legend

-30% - -25%-24% - -10%-9% - 0%1% - 10%11% - 25%26% - 40%

Rental Rates Compared with Previous Quarter


DC: -15%



NOVEMBER 2011


13



Legend

-18% - -10%-9% - -5%-4% - 0%1% - 5%6% - 10%11% - 20%

Level of Rent Concessions Compared with Previous Quarter


DC: 20%



NOVEMBER 2011


14



Legend

-95% - -25%-24% - -15%-14% - 0%1% - 15%16% - 25%26% - 42%

Direction of Business Opportunities Compared with Previous Quarter


DC: 17.5%



NOVEMBER 2011


15



Legend

-50% - -25%-24% - -15%-14% - 0%1% - 15%16% - 25%26% - 40%

Volume of New Construction Compared with Previous Quarter


DC: -42.5%



NOVEMBER 2011


The REALTORS® Commercial Real Estate Quarterly Market Survey asks participants to

comment on current challenges and difficulties in their markets. Below are a few of thecomments about the latest quarter environment.

2012 will mirror 2011 and into 2014. It is simple, no jobs no business. The answers are, cut taxes, cutout federal spending athe size of government agencies or even get rid of them. They do very little, spend a lot of tax money and government employees retire on our tax money. Not theirs.

A poor residential market translates directly into a poor commercial market. Our hands are tied until the residential market improves.

Appraisers using "fire sale" foreclosed properties with no consideration of income/expenses. Even when we do have buyersthe appraisers come back and discount the property because "there are no buyers at that price (sale price)" They completelignore the existence of a contract - a meeting of the minds - and thereby s*** on my deal.

Banks and sellers are still having a hard time letting go. Properties that were purchased during 04-09 are deep underwater and the banks are feeling the strain of owners walking away and/or using the rent payments to subsidize other losses and neglect making the mortgage payments. These scenarios are all too common today, owners and banks need to face the nereality that obtaining a good valuation is very important in today's market. Guessing is no longer acceptable, wanting the highest price sounds good but, is just a dream. Properties priced right are moving. Banks and owners willing to negotiate carefully, and craft some creative deals are not in danger of being shut down or loosing it all due to indecisiveness during disposition of dead assets.

Big spread on Buyer - Seller price and rent expectations.

Buffalo and Western New York remains stable and very "unsexy". Overall, I see people willing to "date" property (short termleases)far more than a "real estate marriage" based on the overall economy.

Business is done daily and if I am not doing business I need to look in the mirror. I believe we have another two years of challenging times but there is business to be done.

Buyers are looking for bargains only. Buyers are skittish. Sellers have to compete with foreclosures/distress sales.

Buyers are looking for the lowest price and trying to push prices down.

Buyers expecting gigantic discounts even on properties already priced well.

Buyers remain spooked by national economic conditions. Seller refuse to meet market prices because their assets are in good condition and they do not need to sell.

Commercial Market is very sluggish. Lack of confidence in overall economy. Wait and see attitudes!

Cruddy, with areas of possible sales only at half price… only at losing money prices

Demand is down and our unemployment is only slightly improved at 13% until employment improves prices are going to be flat at best.




NOVEMBER 2011


The REALTORS® Commercial Real Estate Quarterly Market Survey Comments—continued

17

Difficult at best. Buyers and Tenants are hesitant to make decisions since the economy, in general, is so "if-fy", financing isvery tough, and some vacancy is very long-term.

Difficult for leases, and for Office and industrial, retail is the best choice.

Employment is up, but still down from what it was 4 years ago. Money is available for high credit owner occupied facilities.Credit generally not available for investment without significant pre-leasing (80% to 90%) and at least 20% down.

Financing availability is the key to failure in this market (DE). Loans are being called, and re-financing is next to impossible because of underwater collateral, despite current pmt. status.

Financing constraints continue to plague the market. Prices are not commensurate with "value" and uncertainty about the future regulatory environment causes investors to stand down until the rules are clarified!

Financing continues to be a huge challenge.

Financing is holding my business back. The major banks refuse to finance non owner-occupied commercial properties othethan apartments.

Financing is very difficult.

Five straight quarters of growth, with one exceeding the same in 2007 gives us great hope that we are on the better side of

the Great Recession. I am not a pessimist by nature, but the turbulence on Wall Street, in Europe and even in China combined with the nation debt, the downgrade of our credit rating, the irrational behavior of the banks and the unwillingnessour representatives in Washington to put our best interests before their own have me personally worried that we may be on the edge of a perfect storm that will put us into a tailspin worse than this country has ever seen.

Fresh capital is needed by the small business community, as theirs was depleted over the last four years. Lenders do not provide capital for new ventures.

I am a small individual sole proprietor Realtor, licensed and active for 44 years. In Average times I would average between 8to 15 million per year in gross sales closed. I have not had a commercial ,industrial etc . closing in 30 months. I have had ratified contracts but ,none to closings . Buyer's risk ratio coupled with fear and lack of trust and confidence in the Nation's direction and leadership are greater problems, than the huge problems of available Bank funds. Prices and inventory relateto traditional value are excellent. I'm very concerned about the physical depreciation occurring in all forms of real estate. Noone is spending money to upkeep vacant and partially occupied properties.

I am The Northern Maine Land Man. My biggest single group of buyers are families moving to rural areas where they can survive on less and make a living off an old farm with timberland. Buyers actually seek "bug out destinations".

I believe the market is holding its value now unless something drastically changes the current status. The banks are lookingfor the fair market value for the REO's properties. Non stress property seller needs to be more realistic on the selling price inorder to complete on the current market and make a sale.

I see further decline across the board, only "core" areas seem to be showing any kind of gains, my opinion. Lending is virtually none existent.




NOVEMBER 2011



18

I specialize in the sale of large acreage properties and the inventory is increasing and sales are down considerably. There isno financing available and has not been since 6/09 except seller financing. In both MLS serving Cochise county only 11properties that are 36-50 acres sold since the first of the year. The lowest number in years.

I work in a small market that has weathered the recession well. Low velocity of transactions but a solid market with low unemployment and solid job creation.

In this area, we just had a major layoff of a gov't project. Add this to the 9% unemployment & there is a 'train wreck' in the making.

Investment sales are almost non-existent in this market so there is not a strong focus on cap rates. All my sales in the last two years have been to owner/occupants. Financing for owner/occupants is good and prices are lower so buyers are takingadvantage of the opportunities.

Investors and business owners are buying, and leasing new spaces, however, they are for the most part unrealistic about thprices in South Florida, due to resents negative Residential news about the market, some of them think that the Commerciamarket it's going throw the same problems, and that's not the case.

It seems to be improving but I am not holding my breath.

It's dried up like last years' corn. It's hard to even give away commercial property here.

Job security issues and lack of retail demand puts every commercial interest under a cloud. Strategic niche businesses whounderstand the fine grain details of the local market, and anchor Brand tenants exploring how to reshape their product line tfit the changing market demands, are the only players able to expand into new territories and keep their head above water.The national economy needs to heal for everyone to move ahead together as a healthy economy.

Large Banks failing to meet closing dates. Smaller banks are closing quickly but very thorough.

Local market looks good in 2013 due to increased industrial activity under, or soon to be, construction.

Managing people's expectations is # 1 challenge.

Many opportunities for Cash or low leverage buyers.

Market for leases show little improvement while the sales for commercial properties has slowed considerably.

Market is still fragile with many short sales and foreclosures coming in on continual basis.

Market rents have been flat for a dozen years in the office sector and seem to be inching up in some locales. Older Class C office space should be converted to residential living if in a CBD since it has high vacancy numbers in its existing use. Sale prices are a fraction of their asking price. Leasing activity is way stronger than sales in our market. I have done about 30 leases and 0 sales in 2011.

More activity recently. Indicating some consumer confidence.




NOVEMBER 2011



19

Much fewer inquiries than 24 months ago. Short term leases are more prevalent. Lack of businesses expanding or leasingspace. Large gap between sales and leasing prices to prices a buyer/ tenant is willing to pay!

My Market center is in a Tertiary Mkt. I am working deals 200+/- miles NW of where I live.. do what one needs to with Honorabove all.

My market is Wall Street West...it's been affected by the up and downs of the market. People can't forecast...it's dismal.

No big change upward until election is decided. If current administration returns, we are done as we knew it

No one is staring a business, no one is renting. The only ones moving are those downsizing.

No urgency and the mantra that its is bad to be a capitalist.

Obtaining insurance at a reasonable rate is challenging along with financing.

Opportunities exist for the commercial market in our area, but we have to think out of the box, and go after the business.Financing is still a issue, but both hard money, and seller backed financing is keeping us going for the time being. Banks andother financial institutions tout their SBA and business friendly attitudes, but take a client in for a loan app and see how theyrun! We will all survive, even without a bailout! NEVER GIVE UP!

Our biggest problems are Financing and what is the government is going to do, Thank you

Our market depends significantly on the oil and gas industry. With the lifting of the drilling moratorium, that industry seems tofeel a little more comfortable about making long-term commitments.

Our practice covers a wide geographic area that includes several MSAs. Some are doing better than others, but similar challenges effect all markets. Most markets have more supply than demand, which makes it a buyer's or tenant's market.Unfortunately, there is a dearth of willing and ready tenants and buyers. Lack of available financing makes it difficult for willinbuyers to execute, though financing opportunities are improving. Cash buyers have great negotiating power. Most prospectsare very worried about the threat of ever-changing government threat of regulation and taxation harming their businesses. None can anticipate what the future will hold even a few months down the road leading to uncertainty, fear, and consequentlylack of willingness to lease or buy new properties despite attractive pricing.

Picking up but may take a few years to get on track.

Sellers and Lessors are being a bit more realistic. Buyers are still expecting lower prices due to the large number of properties available.

Shift towards demand of NET Lease Properties as the stock market stays volatile. Distressed Assets dominated our sales.Smaller leasing sizes under 2000K for office due to downsizing. Surplus of deals trying to wrap up before the end of the yealot of 1031 Exchange money trying to be allocated. 2 large scale industrial sales 80K-200K SF closing by years end.

Smaller tenants have been far more active this year. Leases are getting done, but at lower rates. Lease terms are getting longer again, I'm happy to say!




NOVEMBER 2011



20

Starting to see some better signs 4th quarter, some businesses doing well with cash, others still floundering with no access capital

Still very challenging because of a lack of funding for purchases and landlords are still challenged to provide the upfit dollarsneeded to get them across the line. MF land is rocking though so as long as that holds out we can make it to the other sidethis downturn

Terrible market. Empty buildings everywhere with no demand. Outlook is bad for two to three years.

The deals that we are getting done fall under three categories, 1. Owner occupied with VERY favorable Seller financing, 2.VERY creatively structured deals that perhaps blend a lease and sale with extensive participation of the Seller, and 3. Dealsthat the Seller (usually a Bank) simply sells a property for such a low price that it has multiple interested Buyers.

The investment sectors are trying to find stable attractive places to place their resources....fear or insecurity is hobbling the marketplace.

The lack of investment financing has all but killed any sales in this area

The last three months have brought heightened interest and activity in office sales and leasing in the Tampa Bay market areespecially in the medical sector.

The market as a whole seems to be gaining traction. Inventory is still down. Lease transactions seem to be the lion share

movement.

The market does not want to mess with anything that is not making money clear and clean. Most sellers still have not caughon that buyers will not pay what the sellers desired 5 year old values are showing. Inventory is slim for decent property. the local market has tried to shake off the national doldrums, but investors are still wary.

The market has become more stable in the last six months compared to a year ago and more activity is some areas is increasing.

The market has declined at such a measure that in our small town there are over 40+ vacant commercial buildings. If the economy doesn't pick up or we don't receive some financial help for run down buildings, I am not sure what will become of tdowntown area.

The national political situation has investors wait to see what going to happen. There seems to csh available, but they are not willing to buy, unless it's a real steal, and I do mean a real steal.

The only real issue holding us back in a smaller market like mine is lack of financing for the smaller investor (under One Million). The regulators have the banks scared to death and unless that changes we are in big trouble over the next few years. I foresee a stagnant market if we can't get some good loans for decent properties in the pipeline.

The uncertainty factor is very apparent. Buyers and lessees are still wary of the current economy and are sitting on the sidelines. Any optimism relative to the improvement or perception therof of the economy would be positive.




NOVEMBER 2011



21

There are several companies with money to spend, but are afraid to spend it. Many tenants that have leased for years are now buying because they can buy at a much reduced rate. Office buildings that should have sold for $89/SF have been purchased at $43/SF. Industrial buildings or office warehouses have been purchased for $15-25/SF that should have sold fonearly $50/SF

There is a lot of competition among the agents to get buyers. To the point were some will do whatever is necessary to makedeal, even unethical things

There is a lot of inventory that sellers are sitting on.

Too much equity, not enough competitive debt other than agency debt

Too much government regulation has caused small business and national corporations to adopt a wait and see attitude.Local, State, and national politicians need to stop interfering in business commerce.

Very stagnant. The consumer still lacks confidence in the future.

We are waiting for better economic condition

We are having the best year in 15 years

We are in much better shape than 95% of the country

We are seeing an increase in lender owned properties and foreclosures which is bringing prices down. We are very active inthe leasing side.

We see the office rental market is being slow and not improving. Renewal rates are being reduced to 2006 rent levels whilereal estate taxes continue to climb. There will be more foreclosures in the office market as this disconnect continues.




NOVEMBER 2011


NATIONAL ASSOCIATION OF REALTORS ®

RESEARCH DIVISION

The Research Division of the NATIONAL ASSOCIATION

of REALTORS ® produces the Commercial Real Estate

Outlook, a quarterly report forecasting commercial markefundamentals. The Research Division also issues theannual Commercial Member Profile, detailing the businesand demographic characteristics of commercial members

Additionally, NAR Research examines how changes in theconomy affect the commercial real estate business, andevaluates regulatory and legislative policy proposals fortheir impact on REALTORS ® , their clients and America’s

property owners.

If you have questions or comments regarding this report any other commercial real estate research, please contacGeorge Ratiu, Manager, Quantitative & CommercialResearch, at [email protected].

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Division, visit www.REALTOR.org/research.

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Commercial Real Estate QUARTERLY MARKET SURVEY November 2011