2008 Commercial Real Estate
- The commercial real estate industry has put
on a brave front, but signs of pessimism about the
coming months are increasing. The question has
shifted from, "Will things turn?" to "How bad will the
downturn get?" And, perhaps more importantly, "How
will I be affected?"
- The good news for retail is the answer to the last
question might just be, "Not a whole lot."
- The most recent assessment of market conditions
came earlier this week as Chicago-based Grubb &
Ellis, a commercial real estate advisory firm, on
Wednesday hosted its 2008 Market Forecast
Breakfast in New York City. While the sector is
expected to experience some hiccups in 2008, retail
will continue to rank atop investors' list of real estate
interests, ahead of industrial, multifamily and office
- Meanwhile, in a survey of 332 commercial real
estate industry professionals--conducted by DLA
Piper the day after Federal Reserve Chairman
Benjamin Bernanke cut the federal funds rate by a half
a percentage point--a whopping 68 percent of
respondents said they were bearish about the
industry's prospects during the next 12 months. Asked
that same question in April, only 22 percent of
respondents held that position. And the credit crunch
is by far the biggest concern for respondents that said
they were bearish--a full 66.5 percent pointed to it in
contrast with 23.7 percent saying that a sluggish
economy was their main concern.
- Looking forward, there are dampened
expectations for GDP growth, which will affect all
sectors of the economy. Michael Dee, senior vice
president and national director of retail with Grubb &
Ellis, estimated GDP growth at 1.8 percent for 2008,
20 basis points below this year's level. Another and
the rapidly deteriorating housing market, retail sales
will experience only moderate increases next year,.
- Sales growth will remain in the positive territory,
Dee noted, but will be below the level of recent years.
In September, ICSC reported same store sales
growth of only 1.7 percent--6 basis points below the
year-to-date rate of 2.3 percent and 19 basis points
below last year's growth of 3.6 percent. It is projecting
growth in the 2.5-percent range for the holiday
- It's not expected to have much negative impact on
national retail chains, Dee explained, but independent
tenants will suffer, leading to a slight increase in
vacancies at community and neighborhood shopping
centers next year.
- For the third quarter 2007, REIS, Inc. reported that
vacancies edged upward 10 basis points to 7.4
percent and by the end of the fourth quarter the firm
projects the national vacancy rate will hit 7.5 percent;
its highest level in a decade. REIS also reported that
rental growth rate of 0.4 percent during the third
quarter was half that realized in the second quarter.
And, brokers report seeing increases of 30 to 100
basis points on cap rates for lesser quality assets.
- Nationwide retail rents, which currently average
$19.32 per square foot, will stabilize in all but a few
key markets, where demand still outstrips supply.
Those include Washington, D.C., Baltimore, Seattle
and Boston. The Urban Land Institute and
PricewaterhouseCoopers LLP, in their recent report,
Emerging Trends in Real Estate 2008, identified New
York, Los Angeles, San Francisco, San Diego and
Denver, in addition to the aforementioned cities, as
the top markets in the U.S. because of their strong ties
to the global economy.
- On the other hand, Miami, Tampa, Phoenix,
Orange County, Calif. and San Bernardino County,
Calif., are likely see their retail rents decrease in 2008,
Dee says, as the housing bust hit these overbuilt
markets particularly hard.
- All of these factors will lead to a 25 basis point to
50 basis point increases in cap rates for retail
properties--well below the 100 basis point increase
projected for the commercial real estate sector as a
whole. The increase will also bring a respite from the
recent cap rate compression. "I don't think we'll see
the same kind of rates ever again," said Dee.
- For 2007, year-to-date, Real Capital Analytics
reports retail properties trading at an average of 6.58
percent, the lowest level since the real estate boom
began in 2001. Last year, retail cap rates averaged 6.9
Source: Retail Traffic, 2007
Small towns receive retail
facelift Part II
Starting November 1st we will be at:
- 170 South Main Suite #775 (New)
- Salt Lake City, UT 84101
- Bob - 801-364-5300
- Jon - 801-746-5706
- Fax - 801-505-4088(New)
Please Note the Changes!
In this issue:
- Commercial Real Estate Forecast
- Small towns receive retail
facelift Part II
- Public Safety Grants
- Housing-related job losses mount in September
- Lifestyle or Mall?
- Economic notes
- This weeks leads
|Housing-related job losses mount in September
- The housing recession brought more pain in
September as mortgage lenders, construction
companies and real estate firms generated more than
a third of the 71,739 monthly job cuts, reports
outplacement consultancy Challenger Gray &
- But there's more to it than a shrinking base of real
estate professionals. With nearly 130,000 financial
services jobs cut so far this year, real estate experts
say office-using demand is softening.
- The financial industry has been the hardest hit by
layoffs among the major industries, with 69,664 or
54% of this year's financial layoffs occurring at
mortgage and subprime lending institutions.
Challenger Gray & Christmas counts mortgage firms
within the financial sector.
- "Financial firms cannot cut their payrolls fast
enough, especially in the mortgage lending sector,"
says John A. Challenger, CEO of Challenger Gray &
Christmas, in a monthly summary of layoffs published
earlier today. "The heaviest job cutting has occurred
over the last two months as the bottom suddenly fell
out from the mortgage and subprime markets."
- The pace of layoffs has actually declined
compared with 2006. Overall September job cuts, for
example, registered 9.7% below the six-month high of
79,459 in August. Job losses were also 28.5% lower
than September a year ago when employers
announced 100,315 layoffs. Year to date, employers
have cut 587,594 jobs, or 8.1% fewer than the 639,229
cuts announced through this point a year ago.
- The volume of overall year-over-year cuts may
have declined, but layoffs have clearly accelerated
among professions with close ties to the housing
industry. Job cuts in the financial, construction and
real estate sectors generated 97,509, or 16.6%, of this
year's 587,594 layoffs. By contrast, these three
sectors represented less than 2% of job cuts for the
first nine months of 2006.
- A ripple effect from a shrinking job base in
financial services is slowing office absorption.
National office vacancy leveled out at 13% in the third
quarter after 13 consecutive quarterly declines, reports
Grubb & Ellis.
- Another troubling sign: The volume of space
available for sublease increased for the first time in
five years to 77 million sq. ft., up from 73 million sq. ft.
in the previous quarter. That up-tick suggests that
layoffs have curtailed demand for new space, says
Robert Bach, senior vice president of research at
Grubb & Ellis in Chicago.
- "It's pretty evident to me that the layoffs we're
seeing in the financial services sector are beginning
to have an impact on the office market," Bach
says. "The question is, how much deeper will that go?
How many more layoffs will we see, and over what
- Given continued depreciation in home prices and
mounting residential foreclosures, Challenger
predicts that layoffs will cut deeper for a while. "Even if
the worst of the crisis is over, as some are saying, we
could continue to see heavy job cuts in the financial
sector through the end of the year," he notes in the
- "Additionally, we are seeing housing-related job
cuts spread to other industries such as insurance,
consumer product companies and retailers," he adds.
- While the totals are still small, Challenger Gray &
Christmas has tracked 1,900 housing-related layoffs
at insurance companies so far this year, with another
1,215 job cuts in consumer products and 985 in retail.
- Diane Swonk, chief economist at Mesirow
Financial, says the concentration of layoffs in
mortgage lending, construction and real estate shows
that most of this year's downturn has been contained
within the housing industry. "So far, the economy
outside of housing has weathered the subprime crisis
relatively well," she says.
- Even so, Swonk agrees with Challenger that the
housing slump may drag down more sectors in the
coming months. Says Swonk: "The dust has yet to fully
Source NREI Newsline, 2007
Public Safety Grants
Improve Law Enforcement Officer Safety!
- Personal Protective Equipment
- POSTED: 10/16/2007
- FUNDING SOURCE: Dept. of Justice
- ELIGIBILITY: Nonprofit and public agencies,
- $ AVAILABLE: N.A.
- GRANTS AVAILABLE: N.A.
- MAX GRANT SIZE: $500,000
- DEADLINE: 11/14/07
- CONTACT INFORMATION:
- DESCRIPTION: Funding to research, develop, and
demonstrate technologies that will enhance the safety
of law enforcement officers and other criminal justice
Grants for Fire Departments!!
- Assistance to Firefighters Grant Program
- POSTED: 10/17/2007
- FUNDING SOURCE: Department of Homeland
- ELIGIBILITY: Fire departments and nonaffiliated
- $ AVAILABLE: N.A.
- GRANTS AVAILABLE: N.A.
- MAX GRANT SIZE: $500,000
- DEADLINE: 11/30/07
- CONTACT INFORMATION: Grants to enhance fire
departments' and nonaffiliated EMS organizations'
firefighting and emergency response needs by
funding additional tools and resources necessary to
more effectively protect the health and safety of the
- International Business Confidence
- Global business confidence has stabilized in
recent weeks, but remains low and consistent with a
slowly expanding economy. Confidence is weakest in
the U.S., where there is no indication that sentiment is
improving since being hit hard during this summer's
subprime financial shock. Asian and South American
confidence is notably stronger. Sentiment is weakest
among firms in housing and financial services, and
strongest among high-tech businesses. Businesses
continue to respond very negatively to the survey's
broader questions regarding present business
conditions and the six-month outlook, but are more
upbeat when responding to more specific questions
regarding investment and payrolls.
- Investor Optimism Index
- The Fed's decision to cut interest rates in
September is helping gradually repair investor
psyches. In October, the UBS Index of Investor
Optimism inched two points higher to 70. Despite the
slight improvement, investor sentiment remains
fragile as the UBS index has fallen over 30 points
since the beginning of this year.
- Durable Goods (Advance)
- New orders for manufactured durable goods fell
1.7% in September-the consensus forecast was
calling for a 1.5% increase. August durable goods
were revised down even further to show a 5.3% drop.
Shipments fell for the second consecutive month by
2% and August shipments were revised down further
as well. Core capital goods orders and shipments
both posted gains over the month, rising by 0.4% and
1% respectively. The headline drop mainly reflects
weakness in transportation orders, which had been
expected to bounce back in September.
- Jobless Claims
- Initial jobless claims gave back a little of the
previous week's increase, dropping 8,000 to 331,000,
a move in the direction of expectations.
- Existing Home Sales
- The housing market continues to weaken, with
existing home sales marching steadily downward.
Sales declined by 8% in September from the previous
month. The 5.04 million annualized units are slightly
worse than expected. The months of homes available
for sale increased to 10.5, the highest since 1999.
The median house price dropped by 4.2% year over
- New Home Sales (C25)
- New home sales reflect a weak housing market,
although revisions to August data suggest the worst of
the downturn was in August. September new home
sales are up 4.8% from a downwardly revised August
figure. September sales clocked in at 770,000
annualized units. On a year-ago basis, sales are still
quite weak, down by 23%. Census revised downward
August sales by a large 8%. Months of supply
declined to 8.3. The median new house price is up by
5% compared to one year ago.
- MBA Mortgage Applications Survey
- Mortgage demand remained unchanged in the
week ending October 19. Purchase applications
decreased 3.1% and refinance applications increased
4.0%. Application activity is relatively quiet and stable,
with the decline in purchase applications negating the
gains in refinance applications.
- Chain Store Sales
- Chain store sales fell 1.5% in the week ending
October 20, the largest decline in 22 weeks and more
than reversing the prior week's large gain, according
to the ICSC. Year-over-year growth fell to 2.2% despite
easing comparisons. Warm weather and higher
gasoline prices were cited as drags.
- Oil and Gas Inventories
- Crude oil inventories fell dramatically by 5.3
million barrels for the week ending October 19,
according to the Energy Information Administration,
below expectations of a 1.0 million barrel build.
Distillate supplies fell by 1.8 million barrels, below
expectations of a modest decline. Gasoline
inventories fell by 2.0 million barrels, below
expectations of a modest build. Refinery activity fell
from 87.3% to 87.1%. Today's report is bullish.
- Weekly Natural Gas Storage Report
- Underground storage of natural gas increased by
68 billion cubic feet during the week ending October
18. This was a higher build than the market
consensus of a 56 Bcf increase in inventories. With
the gain, inventories are now 7.2% above the five-year
average. This report will likely have a bearish impact
Source: Economy.com, Financial Times 2007
|Lifestyle or Mall?
Depends on who your customer is!
Women over 35 prefer Lifestyle
Market Leaders and Teens prefer
- Retailers are still big on lifestyle centers and
other open-air developments, speakers here said that
the International Council of Shopping Centers' fall
conference. Some said, though, that regional malls
are still preferred shopping venues if the development
is a market leader.
- In the case of apparel retailer Chico's FAS, which
targets women over 35, management found that malls
were no longer catering to the demographic it was
trying to target, said Michael Elleman, that company's
SVP of real estate. Malls have become more teen-
oriented and the parking configurations don't allow for
quick in-and-out shopping. "She doesn't want to battle
the regional mall," Elleman said in respect to his
company's 580-store chain with just 30% of its units in
- However, at the company's 280-store White
House/Black Market concept, which caters to younger
women as well as the over-35 age group, half in are
malls and half are in open-air developments.
- Some developers are trying too hard to force
upscale lifestyle centers in areas that don't have the
demographics to support those stores, Elleman
said. "I think we need to be very careful in some of the
- In the past two years, Ann Taylor Stores has made
a bigger effort to enter lifestyle centers, especially with
its 464-unit Loft concept, said Nelson Daza, director of
lease administration at that apparel chain, which has
a similar consumer to Chico's. At Ann Taylor about
half of its stores are in malls, while the other half are
in open-air locations.
- But Daza still has faith in enclosed venues. "I still
believe that our client is looking for a higher-end
shopping-mall experience," he said.
- What has changed is what the customer is looking
for in that experience. Now venues are expected to
have more entertainment choices, such as gourmet
grocers, theaters and bookstores, he said.
- Times are certainly different than before the
1990s, when lifestyle centers started popping up
across the country and regional malls were the main
shopping option, observed a partner at Westerville,
OH-based consulting firm Asset Strategies
Corp. "Retailers had it very easy for 40 years," he
said. "For 40 years, retailers just had to follow
|THIS WEEKS LEADS:
- Anchor Blue
- Hub Distributing, Inc. trades as Anchor Blue at
216 locations throughout AZ, CA, CO, FL, ID, NM, NV,
OR, TX, UT and WA.
- The stores, offering
moderately priced, casual apparel for young men and
women, occupy spaces of 4,500 sq.ft. to 5,500 sq.ft. in
malls and power centers.
- Growth opportunities
are sought throughout AZ, CA, CO, FL, NV, OR, TX and
WA during the coming 18 months.
- Typical leases
run seven years.
- Preferred cotenants include
food courts and department stores.
demographics include a population of 250,000 within
five to seven miles earning $50,000 as the average
- Major competitors include
American Eagle, Hollister and Pacific Sunwear.
- For more information, contact
- Hub Distributing, Inc.,
- PO Box
- Ontario, CA 91761-7657;
- Web site:
- Nordstrom Rack
- Nordstrom, Inc. trades as Nordstrom Rack at 51
locations throughout AZ, CA, CO, FL, GA, HI, IL, MD, MI,
NV, NY, OR, PA, TX, UT, VA and WA.
discount stores occupy spaces of 30,000 sq.ft. to
40,000 sq.ft. in malls and power centers.
opportunities are sought throughout the existing
markets during the coming 18 months.
- For more information, contact
- 1700 7th Avenue, Suite 1000,
- Fax 206-303-
- Breadeaux Pizza
- Breadeaux Pisa, Inc. trades as Breadeaux Pizza at
106 locations throughout AR, AZ, FL, IA, IL, KS, MO,
NE, TX and British Columbia, Canada.
pizzerias occupy spaces of 2,200 sq.ft. in freestanding
locations and specialty and strip centers. Growth
opportunities are sought throughout the Midwestern
region during the coming 18 months.
leases run five years.
- A vanilla shell and tenant
improvement allowance are required.
- Preferred demographics include a population of
4,000 within two miles earning $30,000 as the
average household income.
- For more information, contact
- Breadeaux Pisa, Inc.,
- 1806 Oak Ridge
- St. Joseph, MO 64506;
- Fax 816-364-3739;
- Web site:
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