Category Archives: MarketStats

A Face For Radio

By Ken Ashley

January 18th, 2012 (ATLANTA)

It was an honor and an all around neat experience to participate in Michael Bull’s Commercial Real Estate Radio show last week (link is at the bottom of this post). Michael assembled a panel of David Tennery, principal of Regent Partners, John Davidson, principal of


Parmenter Realty Partners, and yours truly. Ryan Severino, senior economist for REIS, dialed in by phone from New York. While my fellow panelists are all knowledgeable real estate thought-leaders, the clear consensus was that the entire panel had faces built for radio.

The mechanics of radio broadcasting are fascinating. I’ve never been in a sound studio before, but all the gear was really cool. It looked vaguely like a NASA control panel. I started to do my best Tom Hanks impression from Apollo 13, but the producer looked like she meant business.

Michael Bull created the show over a year and half ago, and in that time, has developed into quite a pro. His lead-ins were flawless, and his elocution perfect. I have a new found admiration for both qualities, by the way. So what was Michael’s

See What I Mean About Radio Face?

cheery advice to his panelist? “This radio thing is so easy, because even though tens of thousands of people will hear you, you can’t see them.” Thanks Michael … I feel better already.

A few highlights from the show:

  • Ryan Severino said that the national office vacancy rate declined by 30 basis points compared to 2010. Asking rents year over year rose by 1.6%, which is the first such increase since 2008.
  • The panelists agreed that a modest recovery is under way in US office.
  • When asked why we weren’t recovering faster, I suggested that the FUD Factor of fear, uncertainty and doubt is holding back corporate America. This fear factor is causing reticence to expand. Lets hope this changes soon.
  • Industries that will produce the most demand for office space are healthcare, technology, energy and education.
  • The office of the future will encourage collaboration and help highly compensated knowledge workers innovate and generate higher revenue.
  • Owner incentives seem to be moderating from the high levels of 2009 and 2010.

I hope you will take some time to listen to the show. The “talk time” (there’s an industry term for you) is 38 minutes.

Here’s the link –

Git-R-Done; Time To Move Those Deals Forward

By Ken Ashley

ATLANTA (July 5th, 2011)

Disney’s acclaimed Pixar unit recently released Cars 2 with “co-stars” race-car Lightning McQueen (voiced by Owen Wilson) and tow-truck Mater (voiced by Larry the Cable Guy). In the movie, the characters head to Europe and Japan to compete in the World Grand Prix, but of course get side tracked with all manner of problems, including international espionage.

While the new movie is a hit, we like the original Cars movie better as it’s seemingly innocent humor is classic and truly funny. Our favorite character, Mater, resembles an International Harvester mining “boom-truck” from the 1950’s. The vehicle that is the inspiration for his appearance sits at a diner in the former lead mining town of Galena, Kansas – population of 3,287, which is down from nearly 80,000 in the late 1800’s. The town, appropriately for the original Cars movie setting,  is on the eastern end of the famous Route 66 (You can also take a spin in the 1951 vehicle, the owners proclaim; it still runs!). Back at the diner, you can purchase sandwiches, clay models of Mater, and learn about the plans for a bed and breakfast (we’ll see about that).

Shoot! You're in Radiator Springs, the cutest little town in Carburetor County

Part of Mater’s charm is the personality of comedian Larry the Cable Guy (aka Daniel Whitney),  who speaks with a thick Redneck Southern accent. Larry’s character brings an often hilarious spin, explaining that his name is like “tuh-mater without the tuh,” telling the audience he’s “happier ‘n a tornado in a trailer park,” and proclaiming that

Shucks, you can call me Larry

he’s  the “world’s best backwards driver.” He attributes this skill to his rear-view mirrors and his own”guiding” philosophy: “Don’t need to know where I’m going, just need to know where I’ve been.”

“I knew it! I knowed I made a good choice!”

Mater’s philosophical musings may go a long way to describing the plight of those on the user side of commercial real estate these days. We certainly know where we have been – in one of the best markets for tenants in a generation. But if we keep our focus on the past, we too could end up being the world’s best backwards driver in terms of real estate deals.

As a very insightful article in the latest Real Estate Forum (@RealEstateForum)
entitled a Rebound By Chapters explains, the real estate recovery is happening at different paces in major metros. The piece, by John Jordan, quotes Cushman & Wakefield’s Ken McCarthy, stating that office leasing reached a six year high in the first quarter of 2011. CBRE Econometric Advisor’s Arthur Jones characterizes the current national office market as “weak but stabilized.” Dennis Friedrich of Brookfield, a publicly traded developer and owner with a portfolio of 78 million square feet, believes that the recovery is “sustainable and will lead to single and double digit rent growth in some US cities in the near future.”

Perhaps the biggest indicator of coming office recovery is the appetite that many major investors have. They are putting their money where their mouth is and now have an interest for office product once again. For example, Joe Oglesby of Wells Real Estate says in the article that his company is “planning to have a very active second half of 2011 in terms of buying buildings.” Pay attention when experts in a market start to acquire new assets.

“I tell you what, buddy; it just don’t get better than this.”

For nearly three years now, tenants have experienced a market in which they could take their time in decision making, and have their every demand met by landlords who were very desperate for their business. It’s been a very good time to be on the user side of things and many have deals have made corporate heros of executives who capitalized on depressed conditions.

We are certainly not suggesting that this environment will change immediately, but in certain cities and submarkets we are beginning to see the market tighten. Many make the mistake of thinking that markets have to actually be in recovery for real estate to cost to rise. What actually occurs is that an asset manager feels a sense of optimism (or feels less fearful as it were) based on what he or she perceives is happening. Then the order is issued to  the leasing brokers to be more conservative on the economics and offer lesser concession packages.

Our advice is to move ahead on projects on the board, and in the vernacular of the wise one, Mater, “Git-R-Done.” Lease early, lease often and with flexibility, and be prepared to accelerate the speed of decision making. If you decide to engage in a real estate project, a best practice is to get senior management or your board to approve a set of parameters and let you go get the deal teed up. If they want to look at it one more time before you sign the lease, so be it, but speed is your ally in a recovering real estate market.

The deal is more than the face rate, of course. Keep in mind that many real estate stats quote growth of “asking rental rates.” This is like suggesting a change in the automobile industry based on the sticker price on new vehicles. Clearly there are many factors to consider in a transaction as complicated as a major real estate deal. So while the rental rate may change upward, a good credit tenant that knows what it wants and is prepared to move ahead with reasonable speed can still make a very good deal in most every major market in the United States.

So, unlike our friendly character Mater, look forward not backwards and be aware of the perception as well as the reality of the real estate markets. It’ll make you look like a real estate hot rod!

Lightning McQueen: Will you stop that?
Mater: Stop what?
Lightning McQueen: That driving backwards. It’s creeping me out. You’re gonna wreck or something.
Mater: Wreck? Shoot! I’m the world’s best backwards driver! Just watch this right here, lover boy.

Should I Stay or Should I Go?

By Ken Ashley

(ATLANTA) February 14th, 2011

No, we are not talking about your sweetheart on this Valentines day. Instead we are covering that other significant relationship in your life; your landlord. When tenants evaluated market opportunities over the past 18-24 months, most decided to remain in place. This behavior is described by real estate brokers and landlords as “blend and extend” because tenants usually have unexpired term


that they fold into the new extended term. Landlords made blend and extends easy because they were terrified to lose paying customers. Tenants were complicit and all too happy to stay because they were scared to move and commit to long lease terms. Plus it was all so easy; just stay and play.

As the economy turns, the decision isn’t so easy anymore. We are working with a number of companies now that are positioning for growth and have a newfound confidence about the future.  The world is their oyster, and while they are cautious, that good old American cowboy optimism is beginning to return.

Should I Stay or Should I Go?

The benefits to taking a risk of a move can be substantial. You can improve morale with a new physical space, update your technology, and get that new carpet smell in one fell swoop. Executives use moves as the time to launch all types of new initiatives, both internal and external. Both employees and customers will see a reinvigorated company and its proud leadership in the new space.

Perhaps the biggest real estate opportunity is the ability to shuffle the deck in terms of how much space you take and where everyone sits (so called “adjacencies” by architects). We have seen many companies over the years make major reductions in their real estate obligation because they are able to “restack” and fit everyone into less space. Of course, many employees are now able to be mobile,  so eliminating their permanent office space is a logical step. Every 10×12 office eliminated saves nearly $4,300 a year (at an 18% loss factor and at a $30 full service rate). Reduce by 10-12 offices over a 5 year term and pretty soon we are talking real money.

But It’s Such a Hassle!

Yes, it is a pain to move. The best thing this real estate broker had to do was to move his own office. Experiencing the problems and uncertainty with even the best planned move is certainly important for someone in my business. But here’s the thing; this is a short term problem, and once the move is over, you really enjoy your new digs.

I’m not necessarily saying that moving is right in every case. Renewing is still a very viable option in most every market. And even though some landlords are starting to get more optimistic, it is still a best practice to hang on to your tenants at any reasonable cost.

Back to the Future

Fortunately, this doesn’t have to be a gut call by management. There are some tools that can help you evaluate the move vs. renew scenario. Start with a space planner who can count all the butts in all the chairs and generate a “program” of your space. As you evaluate other spaces, the space planner will perform a so-called test fit to see how your program works in a potential new space. This will validate how you can use the new footprint and confirm how much square footage you will need to take in a new location.

Then, ask your broker to perform a full side-by-side comparison of a move vs. a renew. Include the space, of course, on a full service basis, but also add in the cost of technology and furniture in both the new space AND in your existing space. Will you require any renovation of your current space if you stay? Will you buy a new phone system or computers? Everything needs to be in the model.

Then review things with accounting on an after-tax basis. If you are publically traded, you will likely “straight-line” free rent and other concessions on an equal basis over the term of lease. Working with your CFO, determine success metrics such as impact on a earning per share basis.

The Holy Grail

As one of my sons would say, “so here’s the thing.” We are not doing all these real estate gyrations just to save a few sheckles on your rent. At the end of the day, the so called Holy Grail corporately is increased productivity. If you can reduce cost by 10%, congratulations. But I bet that pales in comparison to a 5% increase in productivity, or sales, or whatever “offensive” goal you have for the organization.

We contend that too many executives get caught up in saving money and forget the reason the real estate is there in the first place, which it to support the business enterprise.

Our advice is to take an honest assessment of all of the possibilities in a move vs. stay scenario and don’t forget the reason you pay rent every month. View your space as a competitive weapon as opposed to an expense and you will succeed every time.

We’re Not There Yet, But…Moving In The Right Direction

By Ken McCarthy

(NEW YORK) January 7, 2011

C&W Economic Update
US December Employment: Better than it looks, but…

(Below please find a reblog of an excellent report by Ken McCarthy of C&W with his perspective on the release of today’s employment figures.)

US payrolls increased by 103,000 jobs in December, an improvement on the growth in November, but below the general expectation. The good news is the level of employment in both October and November was revised upward substantially. October’s gain, originally reported as +151,000 jobs was revised last month to +172,000 and is now +210,000 and the November increase was revised from +39,000 to +71,000. So over the past three months, the economy has added, on average, 128,000 jobs per month, good, but not enough to substantially lower the unemployment rate on a sustained basis. The unemployment rate did drop sharply in December to 9.4%, the lowest level in a year and a half, but that appears to be a fluke caused as much by people dropping out of the labor force as by hiring.

The job growth was broad based, with increases in almost every major category from manufacturing (+10,000) to retail (+12,000), financial (+4,000) and professional services (+7,000). Leisure and hospitality showed a surprisingly large increase (+47,000) led by employment in restaurants. The largest decline was in Government (-10,000) where sharp declines in local government employment offset an increase in employment in the Federal Government. Private sector employment was up 113,000 and increased by 1.3 million jobs in 2010. At this pace it will be a long time (seven years) before all the jobs lost in the recession are recovered.

In the key office-using sectors employment barely budged, up 7,000 jobs, as the modest growth in professional services and financial was offset by a decline in information (-4,000). This slowdown comes after a very strong and upward revised November, so the trend over the latest three months remains healthy.

For the commercial real estate industry, this report is moderately better than last month, but not very exciting. Employment, the key driver of demand continues to grow at a moderate pace.

I do expect this pace to accelerate in 2011 as the recovery gains momentum. As Fed Chairman Bernanke said earlier today  “…we have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold.” As a self -sustaining recovery does take hold, which I anticipate in the first few months of 2011, employment growth should accelerate from the roughly 100,000 jobs per month of 2010 to 200,000 or more per month. That sort of growth will lower unemployment and boost demand for space substantially.

We’re not there yet, but the economy is moving in the right direction.

Will It Blend?

By Ken Ashley

ATLANTA (November 8th, 2010)

In one of the most successful viral marketing campaigns online to date, kitchen blender manufacturer Blentec has created a series of infomercials featuring founder Tom Dickson. The spots which run in a variety of forums have become an online phenomenon with over 120 million hits on YouTube. Dickson has blended golf balls, cell

Wonder if he can get an office building in there?

phones, iPads/iPhones, frozen chickens, Bic lighters  and any number of seemingly unblendable items in his device. During every episode, he places the improbable item in the blender and utters the now famous phrase “Will It Blend?” with the words “Don’t Try This At Home!” flashing on the screen.

In the world of commercial real estate, we sometimes feel like Dickson when trying to figure out what land or buildings are worth. With pending changes to accounting rules encouraging corporations to “mark to market,” the big question in commercial real estate circles is “What’s it worth?”

The gold standard of what things are currently valued at has for generations been a professional appraiser’s opinion of value. The MAI (Member of the Appraisal Institute) designation symbolizes a professional who has achieved the highest level in the commercial appraisal field. MAIs prepare research in designated market areas; then assemble an analysis of information pertinent to a property; and through knowledge, experience, and professional judgment of the MAI issue a formal report.

The role of the appraiser is to provide an objective, impartial, and unbiased opinion about the value of real property—providing assistance to those who own, manage, sell, invest in, and/or lend money on the security of real estate. MAI or not, thousands of commercial appraisers work every day to assemble a series of facts, statistics, and other information regarding specific properties, analyze this data, and develop opinions of value.

Looking in the Rear View Mirror

One of the major “approaches” to determining value is the sales approach which uses comparable sales as it’s basis. But by the very nature of this method, professionals are looking at historic transactions in order to develop an opinion. In normal markets this isn’t an issue, but in recent times, determining value is a formidable task. Partially, this is because of the scarcity of transactions over the past two years. With banking problems and economic malaise, many are on the sidelines. The product that has traded is, in many cases, a distressed sale which clearly is not normal and is hard to use in determining value for non-distressed assets.

Brother, Can You Spare Some Data?

Appraisers and brokers who are asked to provide estimates of value are in a tough spot these days. Combine the dirth of valid historical sales data and the fact that the market is finally beginning to trade again, and you have one frustrated industry. And don’t even get an appraiser started on capitalizing income or replacement cost approaches (both have data that is all over the board).

But for the fact that property trades have been so nominal in the past 18 months, all cycles are like this. When they return, many will question or try to adjust historical data up or down depending on their point of view.

The rubber meets the road in the coming months as the log jam that is commercial real estate begins to break loose little by little. We have been involved in several situations recently where companies are trying to dispose of fee simple assets. Executives and boards of directors want appraisals to validate the sales prices and in years past, they would take a quick peak at the summary page and nod knowingly. “Yes or no” would be the immediate feedback after just a minute of staring at the first few pages.

In this odd time in the market, we counsel caution in simply cracking open an appraisal and looking at the highest (or lowest) number on the summary sheet for validation on your deal. This is clearly not the appraisal industry’s fault, but instead the fact that we are in a data desert.

In any case, consumers of the reports should not be hesitant to have a conversation with the professional preparing the report to discuss the data and the methods of calculation. Use common sense in evaluating the report that the professional has assembled for you and your team. If he or she is an MAI or similar professional, the analysis will be thorough. However,  it is your responsibility as the consumer of the data to take the time to understand how the appraiser drew the conclusions of value in the report and not simply take the Clif’s notes version and plug that into your project memo.

Otherwise, you might as well buy yourself a blender and see if the machine will eat the report. And yes, you shouldn’t try that at home either!

How Good Economic News Impacts CBD Office

With employers hiring, manufacturers making things again, and consumers once again going to dinner, we appear to headed into better times for our economy. As we try to determine what this means for commercial real estate,  activity in the Central Business Districts (“CBD”) of America is a good indicator for the office market as a whole.

Now we have some facts to impart about the impact of this nascent recovery on CBD office markets based on Cushman & Wakefield’s first quarter US report released April 28th (the summary report is included in this post).

Sunrise over the CBD?

  • Leasing activity nationwide is up 30% compared to Q1 last year
  • Of note, Houston saw a 300% increase in leasing activity followed by Midtown South Manhattan at 217% and Denver/San Diego both at about 150% increase
  • Averaged CBD vacancy increased from 14.7 to 15 percent.
  • The pace of increase in vacancy is slowing across the US.
  • The vacancy trend continued to impact rental rates which saw a 6.6% decrease from this time last year

Our own practice would indicate an increase in activity but many are doing more with less. If a company can finally justify getting out in the market with its lease, then in many cases they can slough off the sublease space they were using. Or perhaps their architect can help figure out the latest way to save space. Put succinctly: there is activity, but in many, if not most cases, companies are looking for less space.

The unknown is what will happen when hiring returns. Our advice is to “go long but option up” to mean lock in the longest lease term as a hedge against future rate increases, but negotiate with the landlord to provide future flexibility for growth and contractions.



Cushman & Wakefield today released first quarter 2010 statistics for the U.S. office market that show national leasing activity has strengthened year-over-year, although vacancies have continued to increase and rental rates have further declined.

A total of 13.8 million square feet of office space in U.S. central business districts (CBDs) was leased during the first quarter of 2010, a 30 percent increase from the 10.6 million square feet leased during the first quarter of 2009. Approximately half of the CBDs tracked by Cushman & Wakefield saw a year-over-year increase in leasing activity. Among the most significant were Houston (300 percent increase), Midtown South Manhattan (217 percent increase), Denver (149 percent increase) and San Diego (150 percent increase).

Despite an increase in leasing activity for most markets, CBD vacancies increased throughout the U.S., albeit at a slower pace than this time last year. The average U.S. CBD vacancy rate reached 15.0 percent at the end of the first quarter of 2010, up from 14.7 percent at then end of 2009. Nine cities did chart a vacancy decline in the first quarter of 2010, with Denver (16.5 percent vacancy), Silicon Valley (23.1 percent vacancy) and Westchester County, N.Y. (15.6 percent vacancy) having the largest declines, registering 0.8 percent, 0.5 percent and 0.4 percent, respectively.

“The rate at which vacancy was increasing has undoubtedly slowed, and several markets have begun to strengthen after hitting bottom in 2009,” said Maria Sicola, executive managing director and head of Americas Research for Cushman & Wakefield. “Tenants throughout the U.S. – driven by expiring leases and favorable terms – are making commitments, which have significantly improved leasing activity.”

The top five CBDs tracked by Cushman & Wakefield with the lowest overall vacancy rates in the nation at the end of the first quarter of 2010 were Midtown South Manhattan (9.9 percent), Downtown Manhattan (10.0 percent), New Haven, Conn. (10.9 percent), Houston (12.4 percent) and Midtown Manhattan (12.6 percent).

Continued increases in vacancy contributed to additional declines in average asking rents across the U.S. The overall average asking rent for U.S. CBDs was $36.88 per square foot at the end of the first quarter, a $2.62 per square foot or 6.6 percent decrease from this time last year. Average asking rents fell in the majority of U.S. CBDs, with Midtown Manhattan, Boston, Midtown South Manhattan and San Francisco charting the largest decreases.

During the first quarter of 2010, nearly all of the CBDs recorded negative absorption – meaning more available space was brought to the market than taken off, or leased. However, year-over-year, absorption increased in the majority of these markets. Nationally, overall absorption was negative 5 million square feet in the first quarter of 2010, compared to negative 14 million square feet in the first quarter of 2009.

Ken Ashley

Source: Cushman & Wakefield Research


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