Realtors Say Commercial Real Estate Market Remains Active

5/16/2003

From: Walter Molony, 202-383-1177 or wmolony@realtors.org Lucien Salvant, 202-383-1176 or lsalvant@realtors.org both of the National Association of Realtors

WASHINGTON, May 16 -- Commercial property sales remain very active despite a decline in market leasing fundamentals, according to presentations at a commercial real estate forum at the National Association of Realtors(r) Midyear Legislative Meetings & Trade Expo. More than 7,000 Realtors(r) and guests are attending the May 13-17 meetings.

W. Cabell Grayson, senior managing director of CB Richard Ellis for the Eastern United States, said the current commercial property sales market is remarkable. "This is one of the hottest commercial investment markets in memory," he said. "The emergence of individual investors and syndicates has been remaking America in terms of commercial institutional investment, and they have become the driving force of the commercial market over the last five years."

Grayson said life and pension fund are the most active sellers of commercial property, accounting for 26 percent of buildings sold in 2002, followed by Real Estate Investment Trusts at 22 percent, and individuals or syndicates who also sold 22 percent of properties. The typical commercial transaction took 5.4 months to complete last year, down from 6.2 months in 2001.

"When you look at who's buying office buildings, 38 percent of properties acquired last year were purchased by individuals or syndicates," Grayson said. "REITs bought 26 percent of office buildings, while life and pension funds purchased 24 percent."

Multifamily housing in 2002 was overwhelmingly purchased by individuals or syndicates, which purchased 68 percent of apartment buildings.

The average number of bidders for institutional properties rose from 7.1 in 2001 to 10.0 last year. "This shows there is a ton of capital seeking commercial real estate and making deals," Grayson said.

In the current market, Grayson said the hottest properties are multifamily housing, retail space, major central business district office space, and single tenant properties, especially leased space. Out of favor are suburban office space, and flex or research and development space; multifamily could weaken in the future.

"Despite a decline in market leasing fundamentals, investment property sales are strong due to low interest rates and leverage. They're an attractive alternative investment, and they offer relatively high spreads over treasuries," Grayson said.

Scott M. Johnston, vice president of Spaulding & Slye Colliers for the Washington, D.C., region, said the national office-leasing environment has seen a drop in demand resulting from the technology bust, while construction and subleasing activity have risen. "The result is higher office vacancy rates and lower rents," he said.

Of the major downtown office markets, Johnston said the lowest vacancy rates during the first quarter were in Washington, D.C., at 5.2 percent, New York City, 8.5 percent, and Atlanta, 10.6 percent.

The national office vacancy rate for downtown markets was 15.0 percent during the first quarter, while the suburban vacancy rate was 17.3 percent.

"Following September 11, 2001, people were speculating that the commercial markets in Washington and New York would take a hit," Johnston said. "It's ironic that the cities targeted in the terror attacks are now the two strongest commercial markets in the country."

Johnston said a flight to value is being replace by a flight to quality office space. "Landlords will fight to maintain occupancy levels through early renewals for long term leases," he said. "Tenants will remain in the driver's seat with an overwhelming number of options for the next 12 to 18 months."

He expects a slow recovery in office leasing to begin around the middle of this year, with a pickup in 2004.

The National Association of Realtors(r), "The Voice for Real Estate," is America's largest trade association, representing approximately 880,000 members involved in all aspects of the residential and commercial real estate industries.

------

Information about NAR is available at http://realtor.org. This and other news releases are posted in the Web site's "News Media" section under NAR News Releases. Statistical data and surveys may be found at http://realtor.org/research.

REALTOR(r) is a registered collective membership mark, which may be used only by real estate professionals who are members of the NATIONAL ASSOCIATION OF REALTORS(r) and subscribe to its strict Code of Ethics.