Austin Business Journal by Cody Lyon, Staff writer
Date: Wednesday, October 26, 2011, 12:33pm CDT - Last Modified: Wednesday, October 26, 2011, 1:24pm CDT
- Cody Lyon
- Staff writer - Austin Business Journal
- Email
Austin snuck into the top five markets to watch next year, according to annual Emerging Trends in Real Estate report from PricewaterhouseCoopers LLP and the Urban Land Institute.
The Capital City was ranked No. 2 on the list following Washington D.C. San Francisco, New York City and Boston rounded out the top five.
Although Austin is one step removed from global pathways, it registers significant interest on investor radar screens and has all the ingredients needed to deal successfully with the nation’s 21st century realities, the report said. It also gave Austin a one up on its Texas neighbors because unlike Dallas and Houston, the city also develops a 24-hour core, featuring pedestrian-friendly, in-town apartment neighborhoods with plenty of nightlife attractions.
Austin’s size limits investor opportunity but the diversity of educational, medical, and government jobs, backed by high tech, insulates the market from boom/bust scenarios, according to the report.
PwC and ULI paint a less than rosy picture for commercial real estate nationwide, implicating next year’s recovery will be slow for most cities.
“Businesses have learned they can increase profits with less space – while people can’t afford bigger living spaces. And, while the nation’s lackluster employment outlook delays filling office space, the related drag in consumer spending compromises growth in retail and industrial occupancies and rents,” the report said.
Those predictions follow a period of mostly sporadic growth last year that was confined primarily to a few real estate markets that offer the primary 24-hour gateways along the coasts, according to the report. Survey participants believe capital will search for yields beyond the overbought gateways, like New York City, and take on considerably more risk.
And you can help!
2011 Light The Night Honored Hero
Caleb Nyberg, Acute Lymphocytic Leukemia
Please Help Find A Cure For Caleb!
Thanks to The Leukemia & Lymphoma Society, children & adults with blood cancers have more hope than ever of surviving cancer. But despite the advances, every 10 minutes a child or adult is expected to die from blood cancer. And leukemia remains the leading cause of death among children.
Please help our Oxford Commercial Walk Team reach our $2,000 goal to help fight cancer!
Make a donation now…
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Team Fundraising Total to Date: $975
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Rachel Coulter has joined Oxford Commercial as senior vice president.
As a well-respected deal-maker and past president of CLBA, Rachel needs no introduction to the commercial real estate community.
With transaction volume totaling 2.2 million square feet over the past decade, Rachel brings a high degree of both energy and market knowledge to her new role with Oxford. She will focus on growing Oxford's landlord and tenant representation business.
"Austin is becoming more attractive to institutional and global investors," Rachel notes. "Oxford's platform offers the perfect hybrid of local ownership with international reach."
Mark Greiner, partner and co-founder, says: "Rachel brings a unique blend of youth, integrity, solid relationships and industry achievement. We're thrilled she joined Oxford and look forward to her role in propelling our team to even greater heights."
Save Rachel's new contact information by clicking on the link below:
Cushman & Wakefield Sonnenblick Goldman just released their latest Capital Markets Update. Commentary provided by Chris Moyer, an associate with CWSG in New York, is included below.
• It’s getting harder for banks to hold syndicates together on big loans ($200M+), particularly where syndicates include offshore banks, as participant banks feel internal and external pressure to maintain liquidity.
• The nervous, risk-averse nature of the buyers of super-senior CMBS has become abundantly clear in the past 4-5 months. After tightening steadily for nearly 18 months, pricing for AAA bonds in the secondary market began to get choppy as early as late March of this year. Since reaching a post-2008 low of swaps + 175 in March, spreads bounced around and then started to climb in June, settling at swaps + 320 last week.
• How liquid are the healthiest U.S. banks? The fact that J.P Morgan and Wells have each stepped up in the past few weeks to take down billion dollar pools of performing CRE loans (Anglo and Bank of Ireland) at close to par, or even above par, suggests that these banks are frustrated with how long it takes to put money to work in the CRE arena and view buying high-grade loans as a quick-n-easy way to push dollars out the door.
• Trepp reported this week that CMBS delinquencies for loans 30+ days in default dropped to 9.52% in August. This is the third decline in the past four months and is a welcome piece of news for the beleaguered CMBS market, particularly after July’s 50bp spike in delinquency. Retail continues to lead the way among the major CRE asset classes, with delinquency dropping 47bps to 7.38%. Office was flat month-over-month, lodging declined to 13.8% and industrial actually lost ground, inching up to 11.24%.
Click for the full Capital Markets Update
Cushman & Wakefield Sonnenblick Goldman is the industry’s leading independent real estate investment banking firm. The firm was founded as Sonnenblick Goldman in 1893 and it merged with Cushman & Wakefield in 2007. Cushman & Wakefield Sonnenblick Goldman provides a full range of real estate financial services, including debt and equity placements, joint ventures, hospitality investment sales and workout advisory services, and it collaborates world-wide with other divisions of Cushman & Wakefield. Further information can be found at the firm’s website at www.cushwake.com/sonngold.
Recently, our Research Director, Garrett Meeker, was interviewed by the Community Impact (a great publication, by the way) for their article below noting the uptick of activity we're seeing in the Northwest suburban market. It’s good news for the market in general, but especially so for some of our landlord clients in Northwest Austin - Four Points Centre, Oak Creek Plaza, and HighFlex.
Read the Community Impact article below:
Vacancies have dropped 4 percent in two years, but Far Northwest Austin still lags behind rest of city
By Amy Deis, Community Impact
Commercial real estate insiders are noting signs of a stronger market as occupancy rates climb and companies sign leases for larger blocks of office space.
“We’ve seen more activity in Northwest Austin than any other submarket due to so much vacancy,” said Richard Paddock, an office specialist with Austin-based HPI Real Estate Services and Investments.
Office Depot is in negotiations to move into the Amber Oaks office park on the corner of RM 620 and Parmer Lane; The Advisory Board Company will be relocating to the Riata Corporate Park from a smaller office on Great Hills Trail; and video game publisher Electronic Arts is taking over a portion of the former Freescale Semiconductor building at Parmer Lane and Anderson Mill Road.
For the past 18 months, the Far Northwest Austin region, defined by Austin-based real estate firm Oxford Commercial as the area between Capital of Texas Hwy., Burnet Road, the Round Rock city limits and Lake Austin, has held the highest commercial real estate vacancy rate in the Austin area, peaking at 27 percent two years ago compared with Austin’s overall vacancy rate of 21 percent.
One of the main contributors to the area’s high vacancy rate are new buildings, such as the 205,000-square-foot Aspen Lake office building at Lake Creek Parkway and US 183, that have remained vacant since being constructed.
But now the area is seeing an uptick in rental rates, one sign that vacancy is on the decline, said Garrett Meeker, research director for Oxford Commercial.
In times of high vacancy, Meeker said rental rates plummet because of lack of demand. When rates start increasing, it indicates that landlords and property owners have noticed demand is on the rise.
“Maybe landlords are getting deals we’re not seeing,” he said. “They feel their product is worth more.”
Ebb and flow
Northwest Austin’s vacancy woes began when the market was flooded with nearly 2 million square feet of new office space from late 2007 to early 2009 in the Far Northwest Austin region. When the market tanked, Meeker said almost all new office buildings remained vacant.
Many of these buildings are in the 78726 and 78750 ZIP codes near the RM 620 and US 183 corridors. Those ZIP codes still saw vacancy rates in the second quarter of about 26 percent and 40 percent, respectively. The vacancy rate in the Far Northwest Austin territory dropped below 23 percent, compared with Austin’s overall rate of 19 percent.
Nate Stricklen, vice president with commercial real estate firm CB Richard Ellis, said office buildings with larger square footage are more attractive to technology companies and those relocating from the West Coast.
Vacancy rates peaked in 2009 and into 2010, but in the first six months of 2011, about 262,000 square feet of office space was filled in the Far Northwest territory. About 77,000 square feet of that was at Ladera Bend, a mixed-use development at 7700 FM 2222 completed in 2007.
HPI bought the commercial portion of Ladera Bend from Wells Fargo in December 2010 and began leasing shortly after. Three technology companies moved in: All Web Leads, Spiceworks and Samsung Austin Research Center. Paddock, who oversees leasing at Ladera Bend, attributes the new leases to the tech-heavy corridor of Capital of Texas Hwy. and FM 2222.
As more companies, especially from California, relocate and expand in Austin, Paddock said Northwest Austin would continue to draw commercial leases, in part because it is a more economical solution compared with rental rates in the Central Business District and Southwest Austin.
“The largest blocks of space are available in the northwest part. For large users, for sure it’s going to be the continued option,” Paddock said.
While the Far Northwest region has had roller coaster–like vacancy rates, those in the North Central territory, which Oxford defines as bounded by I-35, Burnet Road and 45th Street, has had minimal change in occupancy because of its stronger industrial presence and smaller offices, Meeker said. The Northwest territory of Capital of Texas Hwy., US 183, Burnet Road and 35th Street has also had a more stable vacancy rate in the upper teens.
Tracking market progress
Meeker said market data is a constantly changing puzzle. Oxford starts compiling information for quarterly reports during the last month of each quarter. Staff call every listing agent for commercial real estate buildings—not including retail or medical facilities—that are multitenant and have more than 10,000 square feet of space to see how much space is available and what is the going rental rate per square foot. Owner-occupied buildings are not included.
Cushman & Wakefield has released its yearly report on retail property rental performance: Main Streets Across the World 2011. The report has received broad global coverage in major news outlets throughout all regions of the world. Overall, the news is positive for the retail market. The links below are a sampling of the headlines across the globe. Additionally, we have included a few of the summarizing takeaways. You can download the entire report here.
New Bond Street gives way to Parisian chic—The Times UK
Manhattan boasts 4 of Top 10 retail strips-Crain’s New York Business
Asia-Pacific Retail Rents Lead Gains; New York Fifth Avenue Keeps Top Spot—Bloomberg Asia
Retail rents in Sydney's Pitt St Mall are higher than luxury shopping strips—The Australian
As U.S. retailers go, so go Main Street rents in Canada—Globe and Mail Canada
The Most Expensive Shopping Streets In The World—Business Insider
- Although the economic recovery is fragile, prime rents
rebounded globally. After a very rocky 2009/2010, the numbers of cities seeing rental growth is far greater than those seeing rental declines.
- Asia Pacific saw the highest increase in rental growth, attributed partially to added international demand for space in China and India.
- The Americas continued to have accelerated rental growth, increasing 7.4% from a year ago. The sustained growth is helped by "better credit accessibility and more robust labor markets in South America."
- Europe, the Middle East and Africa continued to come back from the disastrous decline in the previous two years, albeit very slowly. Their rental growth was much slower.
- The outlook for the retail sector over the next 12 months is expected to continue in a similar trend - those sectors that have had high-paced growth will continue to do so, while those with slow but steady growth will keep trudging along. The encouraging news is that rental property growth is expected to continue on its path of recovery.
Every once in a while we like to highlight some of our recent "Done Deals". The deals below were featured today in the Austin Business Journal's "Real Estate Round-Up". The full list of recent transactions can be found here.
The Goodyear Tire & Rubber Company signed a lease for 12,000 square feet at Springdale Business Center. Joe Brockman of Oxford Commercial represented the tenant and Lennard Coplin of Kennedy Wilson represented the landlord.
The Solomon Group LLC has leased 8,573 square feet at 5508 Highway 290 West. Ted Doucet of Oxford Commercial represented the tenant and Trish Williams of PRE Management represented the landlord.
VALIC has relocated to the Kaleido building at 9390 Research Blvd. Greg Johnston of Oxford Commercial represented VALIC. Steve McMillon of Kucera Cos. represented Kaleido.
Chris Moyer of Cushman & Wakefield Sonneblick Goldman released the Capital Markets Update this past week which includes Moyer's market commentary. Moyer is an associate with Cushman & Wakefield Sonnenblick Goldman, LLC in New York City. His commentary is below:
• If CRE lending is a three-legged stool with CMBS, life co’s and banks anchoring the market, then one of those legs is under stress. Spreads have widened rapidly on the latest CMBS pools taken to market. The $1.5B Wells Fargo/RBS pool priced a week ago saw its 5 and 10-year AAA bonds priced at 145 to 170 over swaps despite its strong metrics (1.77x DSCR/61.6%LTV). The more subordinate investment grade tranches have widened 50-100bps as well, with spreads ranging from 225 – 575 over swaps. Retail assets comprised 42.6% of that offering, with hotels at 13.6% and office at 13.4%.
• Another blow to the securitization market landed yesterday with Goldman and Citi announcing that they are pulling their $1.5B offering from the market after S&P failed to issue final ratings for the deal. This pool had been priced earlier in the week, with 5 and 10-year AAA spreads ranging from 165-230bps over swaps.
• Overall, we expect CMBS originators to take a much more cautious approach to the market over the coming weeks. These lenders depend on being able to turn over their balance sheets quickly, and the GS/Citi withdrawal will reverberate through the market. The result will be more conservative underwriting, higher spreads and less origination for at least a few weeks while the market settles and the debt limit is, hopefully, extended. JPMorgan’s announcement that they had reduced their projection for 2011 CMBS origination from $45-50B down to $30-35B is in-line with our own projections given the pullback in the market.
• The good news in the credit markets is that life co lending remains strong and bank lending has picked up as improved earnings and reduced loan delinquencies strengthen bank balance sheets. Trepp reported this week that the total delinquency rate for CRE mortgages has fallen to 5.0%, down from 5.4% earlier in the year. The strengthening in bank balance sheets is creating pressure on banks to be more aggressive in their loan origination efforts. Look for more bridge lending, 3-5 year permanent loans, and construction financing (mostly multi-family) over the coming months.
You can read the entire Capital Markets Update here.
Whether you're interested in rental rates, absorption, vacancy rates, new tenants in the market or forecasting, everything you need to know about the Austin office & industrial market is right here. We want to be a resource for you as you make your real estate decisions and we take pride in maintaining reliable data.
Office Highlights:
Vacancy rates continue to drop in the Austin office market. Existing companies such as Google, Bazaarvoice and Facebook, among others, expanding in the Austin market helped contribute to this decline in vacancy. The overall vacancy rate for office space in Austin stands at 19.1% down 2.4 percentage points from where it stood this time last year at 21.5%.
Download the entire Office MarketBeat here or by clicking on the image.
Industrial Highlights:
For the fourth straight quarter the Austin industrial market has experienced positive direct absorption with a total of 374,957 square feet (sf) of positive absorption during the second quarter of 2011. The Far Northwest, North Central, and Northeast submarkets experienced the highest levels of absorption this quarter with totals of 110,888 sf, 95,601 sf, and 187,691 sf respectively.
Download the entire Industrial MarketBeat here or by clicking on the image.
For additional Austin market information broken down by sub-market, please feel free to call our Research Team, Garrett Meeker & Tim Laine. We can also get market information for other cities through our alliance with Cushman & Wakefield. Let us know how we can help!
The Capital Markets Update was released today by Cushman & Wakefield Sonnenblick-Goldman. Christopher Moyer, an associate with CWSB in New York City, provides commentary based on the capital markets data. His commentary is below:
• Trepp reported the first back-to-back monthly declines in delinquency rates since the credit crisis began in 2008. Most of the 23bp overall improvement is the result of loans being resolved at a discount to par, rather than improved performance. All of the major asset classes except office showed improvement, with office climbing 12bps to 7.35% delinquency. Hotel assets showed the greatest improvement, with delinquency dropping nearly 150bp to 13.87%.
• Equity interest for deals continues to be strong. Capital for joint venture equity in the gateway markets is being very aggressive, and there is growing evidence that institutional investors are willing to look outside the tier markets to meet their return and investment goals.
• CMBS is still a roller coaster. Concerns about Greece, the EuroZone and continued lethargy in the U.S. economy contributed to spreads on super seniors gapping out 50-60 bps in mid June before tightening, finishing the month 10bps lower than at the beginning of the month. More subordinate bonds, AA’s and A’s, were hammered in June, ending the month well below their starting points.
• The calendar for CMBS looks busy in July, with seven deals in the pipeline including three conduit deals totaling more than $4.5B, a couple of singleborrower deals and floating rate pools originated by JPMorgan and Deutsche. These deals, combined with 2011’s first half issuance of $15.9B, will keep the CMBS market on a pace to do in excess of $40B for the full year.
You can find the entire Capital Markets Update here.
Cushman & Wakefield Sonnenblick Goldman is the industry’s leading independent real estate investment banking firm. The firm was founded as Sonnenblick Goldman in 1893 and it merged with Cushman & Wakefield in 2007. Cushman & Wakefield Sonnenblick Goldman provides a full range of real estate financial services, including debt and equity placements, joint ventures, hospitality investment sales and workout advisory services, and it collaborates world-wide with other divisions of Cushman & Wakefield. Further information can be found at the firm’s website at www.cushwake.com/sonngold.