Commercial Investment Real Estate

MAR-APR 2015

Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.

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28 March | April | 2015 Commercial Investment Real Estate Uneven Recovery Persists Although the forecast for more improvement ahead in 2015 is welcome news, the recovery is by no means equal in markets across the country. "We are at a point in the cycle now where the tide has raised all ships," Severino says. T e economic recovery has created stability and slight improvement in the of ce market. In 2014, only one out of the top 79 markets in the U.S. did not report positive ef ective rent growth, according to Reis. However, there is a very large gap between the strong markets that have led the recovery and the rest of the metros that have lagged behind. Of the top 79 metros that Reis tracks, only 10 have seen ef ective rents grow above 3.5 percent in the past 12 months. Ef ective rent growth in the vast majority of markets is at or below inf ation. T e "haves" are clearly those markets that have been buoyed by tech and energy, such as San Francisco, San Jose, Calif., Houston, and Dallas, as well as major met- ros such as Boston and New York. San Diego, Orange County, Calif., Denver, and Seattle also are experiencing growth. "Outside of those market areas, it is still a very tepid recovery at this point," Severino says. Markets that rely on oil, gas, or technology have been outperforming the national average and that has certainly been the case in cities such as Tulsa, Okla. Although the local economy has a strong manufacturing base, the of ce market has been buoyed in recent years by the demand for space, particularly class A space, from oil and gas companies. "Over the past f ve years, there has been a f ight to quality, because times were good," says Patrick Coates, CCIM, managing broker and owner of Coates Commercial Properties in Tulsa. T e Tulsa market, which is home to nearly 23 million sf, has been very active recently. T e class A of ce market currently has a vacancy rate of about 5 percent. In fact, the diminished supply of class A space has sparked new construction. Two multistory of ce buildings ranging in size between 60,000 and 80,000 sf were built in the past two years in the south Tulsa suburban market. T e city's class B of ce space has a somewhat dif erent story with large pockets of vacancy, especially among the older buildings in east Tulsa. T e B-plus buildings are fairly full, while the B, B-minus, and C buildings are struggling with vacancies that might range from 18 to 30 percent, notes Coates. T e class B buildings in downtown Tulsa are faring better due to some of the downtown improve- ments that have occurred. T e area has seen investment in the form of converting older warehouse properties into museums, of ce, and retail space; a hotel; several new res- taurants; and streetscape improvements. "Our downtown has really exploded over the last three years," he says. Tertiary Markets Still Struggle Recovery is slower in many tertiary markets across the country. "T ere is a very low demand for of ce space in our market, and our vacancy rates are going up a little bit," says Douglas M. Erickson, CCIM, a broker at Coldwell Banker Commercial SoundVest Properties in OFFICE TRENDS: ASKING VS. EFFECTIVE RENT Based on 79 metros 20 22 24 26 28 30 Asking Rent Efective Rent Q12007 Q22007 Q32007 Q42007 Q12080 Q22008 Q32008 Q42008 Q12009 Q22009 Q32009 Q42009 Q12010 Q22010 Q32010 Q42010 Q12011 Q22011 Q32011 Q42011 Q12012 Q22012 Q32012 Q42012 Q12013 Q22013 Q32013 Q42013 Q12014 Q22014 Q32014 Q42014 Source: Reis Inc.

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