Saturday, October 10, 2009

Headlines on CRE

The weather has never been better in New York City this Fall. Every morning, I put a pot of coffee to brew while watching down at the street. Breezy and nice temperature,men and women briskly hustle and bustle across the concrete jungle  while tourists are strolling down the streets. Always filling the air was the energy (erhh, sometimes pollutants). For a moment , it does seem like there is nothing more poetic than living in this ever so alive city until I open the New York Times (Well, I figure you, like me, feel more nostalgic with that scene than me turning on my PC to read reuters online).

Commercial real estates (CRE) were not short of depressing headlines in Reuters this week.
US apartment vacancy rate hits 23-year high

"It makes me wonder whether the avalanche is on its way for office and retail (real estate) unless things change really quickly and really drastically," Victor Calanog, Reis director of research, said.

Reis still expects the U.S. apartment vacancy rate to pass the 8 percent mark by perhaps next quarter but certainly by next year, Calanog said. That would make it the highest vacancy rate since Reis began tracking the market in 1980.

In the third quarter, the U.S. apartment asking rental rate fell 0.5 percent to $1,035 per month, the fourth consecutive declining quarter. Factoring in months of free rent and other perks landlords have been using to lure or keep tenants, effective rent fell 0.3 percent to $972, also the fourth consecutive quarter of declining rent.

"We have not seen that before," Calanog said............

Reis does not foresee a turnaround in the apartment market until at least the second quarter of 2010 at the earliest..............................

In New York, the largest U.S. apartment market, the vacancy rate fell 0.10 percentage points to 2.9 percent. Effective rent fell 0.9 percent to $2,657 per month.

"With job markets still being lost at the national level and with New York being relatively more dependent on the still-embattled financial services sector, it may take a few more quarters before we see rents bottoming out in the Big Apple," Calanog cautioned.
US office market vacancy rate at five-year high

The national vacancy rate rose 0.6 percentage point to 16.5 percent from the prior quarter and is up 2.3 percentage points from a year earlier, according to a report Reis released on Wednesday.

"The last time we saw vacancies in the mid-16s was at the end of 2004," Victor Calanog, Reis director of research said.......................

Even worse, since the first quarter of 2008 about 106.5 square feet of extra space have piled up, nearly wiping out the 107.9 million square feet that was snatched up during 2006 and 2007.

"So in seven quarters, the current recession has almost undone all additions to occupied space that occurred during the years when office rents peaked," Calanog said................

Asking rent slipped 1 percent from the prior quarter to $28.15 per square foot. That was down 4.3 percent from a year ago, the largest year-over-year decline since 2002.

Factoring months of free rent and other perks, effective rent fell 2.2 percent from the second quarter to $22.91 per square foot and a whopping 8.5 percent from the third quarter of 2008.

"We have to look back to 1995 to observe a similar time period when office property landlords were under such pressure to retain existing tenants or attract new ones," Calanog said.......

New York -- the largest U.S. office market, saw its vacancy rate rise 0.6 percentage point to 11.4 percent. Effective rent fell to $47.16 per square foot, down 4.4 percent. It was the largest quarterly drop Reis recorded since it began tracking the figures in 1999.

Even worse, year-over-year the effective rent in the New York area fell 18.5 percent, just about twice the decline New York saw in 2002 and surpassed only by the 20-plus percent dive in 1983.

The third-quarter vacancy rate at U.S. strip malls, which include local shopping and big-box centers, rose 0.3 percentage points from the second quarter to 10.3 percent, the highest since 1992, Reis said...............

Shopping center vacancy rate hits 17-year high
Asking rent at strip malls slid 0.3 percent from the second quarter to $19.22 per square foot and were down 1.9 percent from the prior year. Asking rents were the lowest since mid 2007.

Factoring in months of free rent and other perks, effective rent fell 0.8 percent from the second quarter to $16.89 per square foot or down 3.8 percent from the third quarter 2008. Rents were the lowest since mid-2007

"Since asking and effective rent growth only turned negative about one year ago, it is daunting to observe this acceleration in decline in what has traditionally been regarded as a stable property type," Calanog said.

Reis expects rising vacancy levels and declining asking and effective rents for neighborhood and community centers through 2011.

"We have yet to observe any unexpected systematic resumption in hiring and strength in consumer spending that may lead us to revise our projections with a more optimistic bent," Calanog said.................

U.S. mall vacancy rate rose 0.2 percentage points to 8.6 percent in the third quarter, the highest vacancy level since Reis began tracking regional malls in the first quarter 2000.

Asking rent at big U.S. malls fell 0.6 percent from the prior quarter to $39.18 per square foot and was down 3.5 percent from a year earlier. It was the fourth straight decline in rents and the largest one-year decline Reis has seen.

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