4B— June 22 - July 12, 2012 — Mid Year Review — Mid Atlantic Real Estate Journal
www.marejournal.com
F INANCIAL
By David Rosenberg, Deerwood Real Estate Capital 2012 Mid-Year Review for Commercial Real Estate
I
t is not uncommon to hear experts describe their thoughts on the
both fear and opportunity. According to the National Association of Realtors® quarterly commercial real estate forecast, fundamen- tals are gradually improving in all of the major commer- cial real estate sectors, with the apartment rental sector fully recovered and showing growth. Job creation remains the main driver in commercial real estate demand and is a major indicator of what to expect. With the creation of jobs at a higher level this year and an increase in consumer
spending, there has been an increase in underlying de- mand for commercial real es- tate space – most specifically multifamily housing, which is the sector with the lowest vacancy rates and strongest rent growth. Multifamily housing has shown the most significant growth, with rents up and continuing to rise. Apartment property prices are now at 2003 levels, though are still lower than their peak in 2007. Vacancy rates are expected to drop below 5% in 2013, which shifts the market in
the landlord’s favor and often leads to higher rents. The lowest vacancy rates at this time are found in New York City; Portland, OR; and Min- neapolis, MN. The office market has the largest annual increase among the primary property types, showing sustained pricing growth over the past year. Vacancy rates in this sector are projected to fall from 16.3 percent in Q2 2012 to 16.0 percent in Q2 of 2013, while rents should increase. Currently, the markets with the lowest vacancy rates are
Washington D.C., New York City, and New Orleans. Still recovering from lack- luster consumer spending and the excess amount of empty space to fill, retail property remains challenged. Vacancy rates are projected to decline from 11.3 percent in Q2 2012 to 10.7 percent in Q2 2013. The markets with the current lowest vacancy rates are San Francisco; Fair- field County, CT; and Long Island, NY. U.S. exports have been negatively affected by the European recession, and the reduction has slowed the re- covery of industrial property pricing. Vacancy rates in in- dustrial properties are likely to decline from 11.0 percent in Q2 2012 to 10.7 percent in Q2 2013. Between today’s incred- ibly low interest rates and continuing volatility in the equity and debt markets, investors can be expected to continue to transact. The increase in the availability of debt and the more aggressive lender underwriting has en- abled more real estate inves- tors to buy and even develop real estate. In addition, due to the reemergence of CMBS and the tightening of mezza- nine rates many existing and currently stressed deals are now able to be recapitalized and saved. Volatility is the new norm! It’s not going away any time soon. That said, as long as the debt markets remain functional and rates stay low, transaction volume in all seg- ments of real estate should continue to rise. Hence, we at Deerwood, remain cautiously optimistic. David Rosenberg is a managing partner of Deer- wood Real Estate Capital and a 19-year veteran of the New York real estate market. After earning a degree in accounting fromYe- shiva University, he worked as an accountant and real estate consultant at Deloitte & Touche, followed by time in Bear Stearns’ CMBS group as a lender, and years running Meridian Capital Group’s capital markets group. Da- vid has been involved with a broad range of deals span- ning the country, closing over $15 billion in commercial financing. ■
currentmar- ket as “cau- tiously opti- mistic.” On one hand , i n t e r e s t rates are at historic lows and lenders are back and aggress ive
David Rosenberg
for business, while on the other, there is tremendous volatility in the market. As we all know, volatility creates
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