Commercial Real Estate Markets Begin Long, Slow Recovery
Vacancy, Rental Rates Show Signs of Stabilizing in 2011 as Demand Returns
Rio Grande Valley, January 26, 2011 – The commercial real estate industry struggled through the start of 2010, but by year’s end there were signs that conditions worldwide had stabilized and were beginning to improve, according to the 25th annual Global Market Report released earlier this month by NAI Global.
While commercial real estate activity continues to be down overall in the Rio Grande Valley, the market remains one of the strongest in the nation. According to the Milken Institute, the McAllen-Edinburg-Mission, Texas regions ranked 4th in the Best Performing Cities 2010: Where America’s Jobs Are Created and Sustained.
After a prolonged, challenging period marked by frozen credit, sidelined investors, stalled development, rising vacancy rates and declining rental rates and property values almost anywhere you turned, improvement, albeit modest, is expected in just about every market sector and geography in 2011.
Much of the global activity in 2010 was driven by corporate space users taking advantage of a tenants’ market worldwide to lock in low effective rental rates and reduce their overall occupancy costs. Office rental rates in some markets have fallen more than 30% from their mid-2007 peak. This activity is expected to increase as economic growth returns, further unleashing significant pent-up demand.
“Although 2010 was another very challenging year for the industry, we began to see clear signs that the global economy and commercial real estate markets had stabilized and were beginning to improve with a noticeable pickup in transaction volume around the world,” said Jeffrey M. Finn, President & CEO of NAI Global. “Companies around the globe are taking advantage of the current market, extending or renegotiating leases, securing investment properties, disposing of underperforming assets and finalizing plans for growth in the next 24 months. We expect a much more active market for buyers, sellers and occupiers as conditions continue to improve.”
The investment market also showed signs of life in 2010 as credit markets thawed. The massive wave of foreclosures that was predicted heading into 2010 never materialized as financial institutions opted to extend or re-work troubled loans. However, the sidelines are growing crowded with REITs, private equity and institutional investors who have amassed a tremendous amount of capital and are actively looking for deals, said Finn. Commercial real estate investment should also get a boost from new investors drawn to real estate in pursuit of yields and further enticed by record low interest rates.
Markets across the U.S. are showing signs of recovery, as are parts of Asia, Europe and Latin America. But financial collapses in countries like Greece, Iceland and Ireland are endemic to the rocky global recovery. For every Brazil and China, countries that are showing signs of strong growth, there are contrary markets like Spain that are showing signs of a prolonged recession.
“The real estate market’s near-term future is all about the strength and timing of the economic recovery,” added Dr. Peter Linneman, NAI Global Chief Economist and Principal at Linneman Associates. “Job growth will be key, as a recovery without jobs does not fill much space. As jobs are created, nearly 2 million new households will form and consumer confidence will rebound, leading to a rebound in corporate profits and economic stability. The momentum building at the end of 2010 points to a hopeful outlook for 2011.”
We continue to feel the momentum here in the Rio Grande Valley and are optimistic about 2011 as well. Because of our unique location, we have close ties to the business community in Mexico and a proven understanding of the unique economics of the U.S. - Mexico border area. With a dynamic, young labor force, great weather, low cost of living and plenty of recreational activities year round, the Rio Grande Valley, Rio South Texas, region continues to be an ideal location for companies looking to expand or relocate.
2011 Global Market Report
Now in its 25th year, NAI’s Global Market Report offers insider insight and perspective on market conditions reported by NAI experts on the ground in over 200 property markets worldwide. To obtain a copy of the full report, visit our website at www.NAIRGV.com
NAI Rio Grande Valley is able to provide services to both international and domestic clientele. NAI Rio Grande Valley is a focused commercial real estate brokerage, consulting, development and syndication firm serving the Rio Grande Valley and is based in McAllen, Texas. Our mission is to transform real estate opportunities into profits for owners, users and investors. Please visit our website for more information, to follow us on Twitter and “Like” us on Facebook. www.nairgv.com.
U.S. Market Highlights
Class A Office space in the CBD, especially hard hit during the recession, saw leasing activity increase in 2010 as space users took advantage of a tenants’ market to lock in low rates or upgrade from lower-quality space. While not yet a cause for celebration, it was enough to shave a half-point off the national average vacancy rate for downtown Class A office space, which declined from 13.8% in 2009 to 13.3% in 2010 after rising almost 35% the previous year. The national average rental rate for Class A space in the CBD slipped 14.1% from $37.11 in 2009 to $32.51 in 2010, after falling more than 24% the previous year.
The nation’s retail markets also appear to have stabilized. While some markets still struggle to fill big boxes vacated by national chains, others have seen new entries and local retailers upgrading to better locations. The national average vacancy rate for downtown/CBD retail space stood at 8.2% in 2010, down from 8.9% in 2009, while rents slipped from $39.90 in 2009 to $39.79 in 2010.
Industrial markets appear to be on the mend. While demand for weak warehousing space continues to be weighed down by weak consumer demand, the market has benefitted from a diminishing pipeline of new construction. Vacancy rates for bulk warehouse space stood at 10.7% in 2010, down from 10.9% in 2009. Rental rates slipped from $4.60 in 2009 to $4.55 in 2010.
Select Global Market Highlights
Latin America & the Caribbean: The Latin America region witnessed remarkable growth in 2010, driven by strong domestic demand, healthy exports of raw materials to Asia (particularly China), and increasing demand due to the modest recovery in the U.S. The region also benefitted from an increase in domestic investment after years of off-shore investment. Latin America is expected to continue its strong growth in 2011, and the Caribbean is expected to begin its recovery as tourism rebounds due to improved economic conditions around the globe.
About NAI Global
NAI Global is one of the leading commercial real estate services providers worldwide. Headquartered in Princeton, New Jersey, NAI Global manages a network of 5,000 commercial real estate professionals and 350 offices in over 55 countries, and completes over $45 billion in annual transaction volume. Since 1978, NAI Global clients have built their businesses on the power of NAI’s expanding network. NAI Global’s extensive services include corporate real estate services, brokerage and leasing, property and facilities management, real estate investment and capital market services, due diligence, global supply chain consulting and related advisory services. To learn more, visit www.naiglobal.com. Follow us on Twitter (@NAIGlobal) and Facebook.
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