The work out crowd including receivers, appraisers, and any other service provider who is suddenly focused on this space will have a banner year. A court appointed receiver in this recent LA Times article said “The level of defaults will come as a shock to the general public..I don’t think we have seen anywhere near yet how dramatic that is going to be. The tunnel is still dark.”
Sadly we can report this is true as our own team has dealt with three active transactions in the past 60 days who faced (in two cases) a building headed into foreclosure and in one case a building trading “deed in lieu” of foreclosure. Getting a call from the new owners after a property is sold on the court house steps is a gut check experience, but I’m afraid it will continue for some time.
Tenants need to take active and aggressive measures to protect themselves in this environment. There exist a whole suite of legal tools as well as good old fashioned common sense that can be put in place. Watch future post for some of these to be addressed in detail. In the meantime, let us know if you have a “situation.” In our role of tenant advisor we are well equipped to sort through the legal issues of struggling landlords.
Jim Delaney, who has a Wall Street focused blog has an interesting quote from Cushman & Wakefield Co-Chairman Bruce Mosler: ““So much capital is on the sidelines now, lacking product. A lot of real estate is owned by the banks or in CMBS, and as banks’ balance sheets improve they’ll put the product back on the market. Sometime in the latter half of 2010, we’ll see the investment sales market adjust. Owners who can leave a lot of equity in the property – REITS, foreign buyers, institutions – will dominate the new ownership landscape.”
I agree with Bruce that equity is king and this will change alot of the fundamentals for landlords. They will be less worried about cash flow (with low debt) and more worried about the value of their buildings. We will adjust our negotation strategy accordingly when we see these types of owners.
In a great article appearing in the recent CoreNet Leader Magazine my colleague Gagandeep Singh along with Nadia Orawski (both with Deloitte Consulting) discusse the latest iteration of “flexible work.” This much discussed form of workplace function is now maturing and able to be implemented. I think Gagan correctly diagnoses that much of corporate America has not adopted Alternative Workplace initatives because internal project leaders are focused on a specific project as opposed to sustained organizational change. In order for flexible work to actual be possible in scale, real estate, HR, IT and senior management must all be on the same page. Then, execute!
If you have a flexible workplace program you would like to highlight here, please let us know.
Below is a report issued by Cushman & Wakefield’s Atlanta Research Department:
Office: Atlanta’s office market reported 2.3 msf of negative overall absorption in 2009, as sublease vacancies increased 133.0% during the past year to nearly 3.5 msf. Taken together with 1.9 msf of speculative construction completions, overall vacancy increased to 20.2%. Overall average asking rents were relatively stable at $21.32 per square foot (psf); however, increased concession packages were prevalent. During the year, just 1.3 msf traded for roughly $100.0 million.
It’s apparent that Atlanta’s economic recovery will lag the national recovery. As its inventory of vacant office supply continues to grow, downward pressure on rents will intensify in 2010. Investment activity will remain limited, though opportunistic investors may find increased opportunity. Atlanta’s office market is expected to stabilize in the second half of 2010, with a sustained recovery in the market unlikely to take hold until early 2011.
View our full Office MarketBeat
Industrial: Industrial space users sought operational cost savings through consolidation in 2009, as 2.8 msf of negative overall absorption marked the first year of negative absorption in Atlanta’s industrial market since 2002. The impact of these losses on vacancy was mitigated by a relative lack of development activity during the year, as just less than 2.0 msf completed this year. At year-end, 642,233 sf were under construction in two build-to-suit projects. Overall vacancy increased 1.5% in 2009 to 10.6%, but remained well below peak rates reported during the previous recession. Atlanta reported nearly 3.9 msf of investment sales, the vast majority of which traded as part of ProLogis’ 33.0-msf nationwide industrial offering.
Continued expansion in the industrial indices will result in increased leasing activity in 2010, especially among distribution facilities attracting headquarters relocation activity. Speculative development will be limited, as developers remain focused on build-to-suit projects. Though overall investment sales levels may decrease from 2009, individual sales transaction should increase particularly among long-term net-leased properties.
View our full Industrial MarketBeat
C&W Atlanta’s Research published the 2009 year end real estate review (below). As you read the report you will see a few trends: (1) no new cranes will be in Atlanta for many months (2) Landlords are not taking expensive vacations, and (3) now is an exceptional time to be a tenant in need of space. Examine the report and let us know what you think by posting a comment.
Year End 2009 Atlanta Overview
We are proud to report that our client, Porsche, has received LEED Gold certification for its Training and Distribution Center in Eastern Pennsylvania. IDI was the developer of the building. This is the first LEED Certified building for Porsche in the US. Congratulations to Porsche for leading the automobile industry in going green! Please click the link below to read the full article.
For those of us who deal in the commercial real estate industry, the real question as we begin 2010 is: Should you hit the gas pedal on real estate projects currently in the pipeline? A recent article from the Atlanta Journal Consitution quotes Cushman & Wakefield Atlanta’s Director of Researchwho suggests that we can see the light at the end of the tunnel in terms of commercial real estate’s pain. This article from Crain’s on January 3rd also indicates that commercial rents will bounce back in the foreseeable future.
In an up and down market, the only constant is change. Rents will rise and concessions will get pulled back in the coming months; the only question is when?
Now is the time to make real estate a priority. From our perspective, it is still a tenant’s market, although that is likely to change in the near future. Our goal is to help you time your transaction so that you avoid getting “caught” in a recovering real estate market.
Please contact us for a comparison of your lease terms to the market and defend against optimistic landlords!