Latest Office Vacancy Report (October)

Numbers are in. Most areas with the exception of I-75 Fruitville (down) have edged up. No change in Venice. North Port is edging near 40% vacancy and this does not include sublet space. Herewith the numbers:

Downtown Sarasota: 13.41% +
University Parkway Area: 20.31% +
I-75 Fruitville South to Clark: 21.27% -
Venice: 22.03% (N/C)
North Port: 37.28% +
Suburban & South Trail: 27.84% -

Just Listed

PROPERTY IS NOW FULLY LEASED! THANK YOU FOR YOUR INQUIRIES.

Just an idea how inexpensive office space is getting out in Lakewood Ranch. This one's fully furnished.

Latest Office Vacancy Report

Sarasota EDC released its latest numbers...

Downtown Sarasota: 13.21%
University Parkway Area: 18.00%
I-75 Fruitville South to Clark: 22.97%
Venice: 22.03%
North Port: 35.13%
Suburban & South Trail: 28.02%

Note: this does NOT include sublease space. Numbers are definitely higher when this is factored in.

The Upward Pressure on Cap Rates

As things slow and credit becomes harder and harder to obtain, there's no doubt that buyers are in the driver's seat and will probably remain there for quite some time. As commercial property continues to experience depreciation, investors are demanding better cap rates. Not rocket science, obviously. I don't see this changing for the foreseeable future. From CRED..read on.

With sales activity throttled, property investors expect capitalization rates for the transactions that do close to significantly increase through early next year.

All property types will experience cap-rate gains over the next six months, exceeding the gains of the past year, according to the investors who participated in the latest PricewaterhouseCoopers Korpacz Real Estate Investor Survey. The survey polls REITs, pension funds, mortgage bankers, developers, insurers and other institutional investors.

Regional malls, with a current average cap rate of 6.78%, will see the biggest gain at 47.5 basis points, or 7% of its current base, and suburban office, with a 7.34% average, will see an increase of 44 bp, or 6% of its base. Since last year's third quarter, the suburban office rate increased just 10 bp, while the regional mall rate dropped 8 bp.

The cap rates of all other sectors are expected to increase by 5% each over the next six months.

Office cap rates are expected to increase in all 24 markets covered by the Korpacz study. But in six markets, the expected increase is less that the cap rate gains that occurred over the past year.

The office market with the biggest projected cap-rate gain is Houston, whose 7.27% average is expected to increase 79 bp over the next six months. Its average dropped 45 bp over the past year.

The Manhattan office market's average cap rate, which grew 18 bp to 5.7% over the past year, is expected to increase another 33 bp in the next six months.

While investors surveyed predicted cap-rate gains, they also said their confidence in a near-term recovery of real estate markets is diminishing. The survey's general consensus is that buyers and sellers will remain on the sidelines until credit-markets turmoil subsides.

They also expressed a strong sense that in the coming months, sellers will emerge with properties that are backed by maturing loans and are unable to find new financing. That could be significant since the head of CMBS research at JPMorgan recently noted that the emergence of such forced sellers may be a key factor in helping commercial-property prices fully adjust.

The Korpacz survey respondents also expressed a general sense that the investment slowdown induced by the credit crunch is lasting longer than most expected. "Our six-month recovery projection has been derailed by complete complexity and doubt," said one person surveyed.

The slowing economy and its potential to weaken demand for commercial space is further dragging down investor confidence. "Even all-cash buyers are hesitant about buying because no one is sure about near-term demand," said one respondent.

Copyright © 2008 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.

Economic Malaise Spreading to Leasing Market

Uh oh, looks like malaise is spreading to the lease markets as well. Personally I've had a good leasing year with little in the way of slowdown, but there may be other reasons for that. From my experience, however, I'm seeing landlords push for shorter term leases for a myriad of reasons (mostly an uncertain future), and this is borne out in the following CoStar article.

Facing Slower Lease-ups, Commercial Real Estate Brokers Envision Free Rent and Other Perks From Builders to Lure Office and Industrial Tenants

Call it the "deer in the headlights" effect. Caught in the glare of bad economic news, mixed-signals about the direction of the economy and an imminent change in administrations, many business tenants are opting to stay in a holding pattern and renew leases in their current locations rather than incur the expense and risk of moving. While that’s helping keep rents and occupancies fairly stable in most markets, brokers and analysts warn that developers may take a hit to their bottom lines in the next two years as absorption continues to flatten or decline in many U.S. markets.

At most risk are developers delivering new projects. With tenants now opting to renew their leases rather than expand or move, developers may need to cut rents, beef up concession packages and generally accept lower yields to fill buildings that started construction a year or two ago during better times, several commercial brokers told CoStar Advisor.

"Tenants don’t know what’s going on [in the economy]; they’re saying, ‘we don’t want to bite off a 10-year lease deal, let’s wait until things turn around,'" said John Dettleff, senior vice president with Grubb & Ellis in Vienna, VA. "They’re signing short-term leases because they don’t know if it’s the bottom of the cycle or still going down. And that’s too bad for developers, because [their pro formas] only make sense if they’re doing 7- to 10-year deals."

Developers with new buildings in many markets have already repriced rental rates and offered healthy tenant improvement allowances, free rent, construction management and other inducements to compel reluctant tenants to move, Dettleff said. But many are finding it difficult to overcome the inertia induced by the uncertain business climate.

"It’s very costly for industrial tenants to move equipment. And for a technology company or a mid-size government contractor, a 10-year lease may cramp their ability to sell the company, which eliminates a big exit strategy."

Developers are experiencing longer lease-up times than they expected when they launched projects two years ago, agreed Tom Capocefalo, managing director for tenant representation firm Studley’s South Florida office market. With three buildings totaling about 1.8 million square feet slated for delivery in Miami's CBD in mid-2010, owners and landlords are trying to generate some leasing momentum by providing very attractive leasing terms to initial tenants.

"I would suspect that the overall concessions they’re offering to induce tenants are probably greater than they envisioned in their pro formas," Capocefalo said. "As their leases expire, tenants will at least entertain the idea of a move. But at the end of the day over the next 18 to 24 months, they’ll remain a bit more conservative in their growth expectations; they'll stay put and attempt to secure more favorable renewals by measuring and leveraging against other office developments."

Continue Reading...

Moody's: Commercial Real Estate Prices Dip in June

NEW YORK - Commercial real estate prices continued to decline in June, according to Moody's/REAL Commercial Property Price Indices, Moody's Investors Service said Wednesday (8/20).

The index fell 3.3 percent from May, and was down 9.6 percent from the year-ago level.

June was the fourth consecutive month that the index declined, Moody's (nyse: MCO - news - people ) said. The CPPI now stands 11.8 percent below its peak in October 2007.

The index is based on repeat sales of the same properties across the U.S. at different points in time.

All four property types measured by the index went negative during the second quarter, Moody's said. The national industrial market saw the largest price drop, down 9.3 percent during the quarter. National apartment market prices fell 7.1 percent, while office prices slipped 5.9 percent and retail declined 4.6 percent.

Through the first half of the year, transaction volume dropped more than 25 percent compared to the first half of 2007, Moody's said. There was a slight increase in both number and dollar value in June from the previous month, the company said.

The June uptick may be the first sign of stabilizing transaction volumes, which could point to future price stabilization, said Moody's Managing Director Nick Levidy. However, "it may also be a transient or seasonal effect, and future data will need to be examined in order to identify any trends." From Forbes.com

Copyright 2008 Associated Press. All rights reserved.

The Problem With Lakewood Ranch

What would I advise those looking for office space in Lakewood Ranch? Get it while you can.

Rents have sunk to incredible new lows in this upscale commercial enclave just east of I-75. The situation has grown so desperate, in fact, that I just finished up a lease where the owners offered one entire year of free rent to a new tenant. Upfront. Although this was a bit of an anomaly, I see similar things in store for this beleaguered area if things don't improve relatively soon. In the end, we ended up leasing the space to a national non-profit organization and they offered to pay rent for the entire term. To underscore the significance of this, when I stood up and pitched the unit at the Commercial Investment Division's (CID) monthly broker meeting in June, there were audible gasps from other brokers in attendance. What's more, I was fielding at least two calls per week from other agents who wanted it "out of the way." Although I wasn't there, I'm told the existence of this property was of particular note at the last Manatee EDC vacancy meeting.

So this is what happens when you have a perfect storm of a crummy economy, rising commodity prices, overbuilt office space and high pass-through expenses. People shopping for office space in Lakewood are well educated as to the vacancy situation out there and use that knowledge to their advantage. Owners of these vacant properties are hamstrung, at least for now until enough of it gets absorbed that rents can start swinging back in the other direction. There is some very nice Class-A office space available in Lakewood for $11 and $12 per foot currently. Do I think those are fair prices reflective of the product being offered? Not really, but the owners of these buildings have to do what they have to do in these challenging times. Better to have someone paying some rent, plus expenses. than it sitting vacant bleeding money month after month. I do feel that base rents are as close to bottom as they're going to get, but I'm just one guy with an opinion.

The other issue here is that, with such cheap rents, landlords run the added risk of attracting and renting out their spaces to less than credit-worthy tenants. Cheap rent oftentimes attracts the shaky, less than stellar renter. The potential problems these bargain basement tenants introduce could end up being worse than allowing the place to stay vacant a little longer. Tenants who shop solely on price alone are not always the most desirable. Be careful.

How long do I think this situation will last? Probably another year or so before we start seeing some turn around out there. I would advise tenants who are on the fence about leasing space in Lakewood that the big price cuts have probably already been made. I'd also advise them they should get what they can now because the cheap rent ain't gonna last forever.

Retail and Office Delinquencies Shoot Up

From CoStar:

Increased volatility in the office and retail sectors have led to a two basis point increase in U.S. CMBS delinquencies, according to the latest Fitch Ratings loan delinquency index. While overall delinquencies increased only mildly for the fifth consecutive month, the retail and office sectors led the index with net increases of $70.5 million and $62.2 million, respectively.

Despite relatively stable performance to date, Fitch remains concerned about the retail sector.

"An increase in retail bankruptcies and a continued decline in consumer disposable income are evident, though they have yet to impact retail performance," said Susan Merrick, managing director of Fitch. "High energy and commodity prices, rising unemployment, housing market weakness, and lower credit availability continue to negatively impact retail sales and are expected to dampen retail sector growth going forward. Recent store closings, including continued bankruptcy filings of tenants such as specialty retailer Linens 'n Things and discount-apparel retailer Steve & Barry's, will impact retail performance."

Retail loan delinquencies increased 25.7%...Click here for the rest of the article.