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.
Issue link: http://cire.epubxp.com/i/649656
Commercial Investment Real Estate parking deck that now brings parking more in line with the current demand for 5/1,000 sf, and the f rm is considering fur- ther expansion that would raise the level to 6/1,000 sf. Arizona is also home to value-add office plays. "There are plenty of value-add oppor- tunities still in the Phoenix and Tucson markets," agrees George Larsen, CCIM, a principal at Larsen Baker LLC in Tucson. T e f rm focuses on value-add repositioning opportunities with a current portfolio of 2.5 million sf of of ce and retail properties in Tucson. Larsen Baker contin- ues to f nd properties that are in transition or bank-owned at discounted prices. In addition, there is ample demand on the tenant side from companies that are looking to upgrade and provide space that is appealing to workers. At the same time, many tenants are still price sensitive and reluctant to pay the higher costs necessary to support new construction. So, there are def nitely opportunities to buy and rehab properties that f t into that bifurcated market, Larsen says. For example, Larsen Baker bought a vacant, vandalized bank-owned office/f lex space property near downtown Tuc- son for $650,000 or $16 psf that included 3.67 acres and nearly 40,000 sf in three buildings. T e f rm spent about four times the purchase price renovating the buildings to create the Madera Business Park, which is now 95 percent occupied, primarily by government of ces. Such projec t s gener a l ly deliver a good return. Larsen Baker prefers to buy proper- ties at about $35 to $45 psf or 30 to 40 percent of replacement cost and spends another $60 to $70 psf on interior and exterior renovations. "If we can lease the renovated of ces for $15 psf net rent, the investment value of the of ce building should increase to about $160 psf at stabilized occupancy," Larsen says. T at is still well below the cost of new construction, which in Tucson is about $200 psf, he says. Pressure to Compete Some existing landlords also are investing signif cant capi- tal to both f ll empty space and hold onto existing tenants. New York City is one market that is bucking the national construc- tion trend. The city has seen increased competition coming from a wave of new multi-tenant of ce development. In particu- lar, signif cant new development is occurring on the west side of Manhattan near Hudson Yards where Related Cos. is building a 3.3 msf of ce tower and Brook- f eld is underway with a new 2.3 msf building. Even with gross rents trend- ing upward of $100 psf in the new towers, those projects are enticing tenants away from older building stock, notably the Midtown area where the average age of a building is more than 50 years old, says Craig Evans, CCIM, senior managing direc- tor at Cushman & Wakef eld in New York City. Those aging buildings are struggling to meet the demands of today's tenants, who want more amenities and the infra- structure that allows them to 14 % 1 3% 12% 11 % 10% 9% 8% 7 % 6% 150 100 50 0 ( 50 ) 05 06 07 08 09 1 0 11 12 1 3 14 15 16 1 7 Chan g e in Demand (Y/Y ) Chan g e in Su pp l y (Y/Y ) Historical Avera g e (200 5– 201 4 ) Vacanc y U.S. Offi ce Supply/Demand Change (in msf) Source: CoStar March | April | 2016 28 Source: CoStar ta l h o l Yo r b u c tio in c f r o o f l ar , is o M a w h 3.3 f e l 0% 1% 2 % 3% 4% 5% 6% 7 % Sa n Jose Seatt l e H ousto n S an Francisco Ph oen i x C harlotte Austi n Po r tla n d D a ll as - FW B oston W ashin g ton D. C . Mi nneapo li s N e w Y ork Y D enver C hica g o O ran g e C ount y Mi a mi Los A nge l es Phil a d e lphi a Atla n ta S an Die g o Leased U /C as % o f Inventory A vailable U /C as % o f Inventory Offi ce Construction as a percentage of inventory