Posts Tagged ‘rental rates’

Office Rents Could Be Close to Hitting Bottom

Tuesday, March 23rd, 2010

Limited new supply and improving employment numbers could signal office rental rate rise.  A combination of limited supply growth and anticipated stabilization of the jobs market could mean that office rents may return to positive growth sooner rather than later.  That’s the opinion of Victor Calanog, a researcher at Reis, Inc., one of the nation’s leading providers of commercial real estate performance information and analysis.

According to Calanog, “Office properties took the brunt of the recession last year, with rents falling at record rates.  Effective rents cratered by 8.9 percent, the largest decline on record in almost 30 years of Reis history.  Hidden amidst the devastation were signs that office occupancies were faring better than other property sectors.  While multifamily and retail vacancies were hitting highs unseen in two decades or more, the national office vacancy rate was 17 percent at the end of 2009, the highest level since 2004.”

The percentage of office properties that had reduced their rents hit 86 percent in the 4th quarter of 2009.  Calanog predicts that office rents in Washington, D.C., could be higher than those in Manhattan by the end of 2010.

The good news is that recent labor market figures are encouraging, with the unemployment rate holding steady at just under 10 percent nationally.  Wall Street firms have started hiring again and job losses in New York were not as dire as predicted.  “Unexpected events can derail this recovery, and economic growth is expected to be fragile for the near term, but as more positive news emerges we may be on track to seeing rents grow as early as next year,” Calanog said.  “If this is the case, transaction volume and prices may pick up quickly to capitalize on the next upswing.”

Landmark Study Finds Increased Productivity, Lower Vacancy and Higher Rents in Green Buildings

Monday, November 23rd, 2009

Study concludes that green buildings are healthier for employees.  A new study conducted by the University of San Diego and CB Richard Ellis Group Inc. (CBRE) has found that tenants in green buildings experience fewer sick days and have increased productivity.  Furthermore, researchers determined that green buildings have higher rental rates and lower vacancies.

Overseen by Dr. Norm Miller of the University of San Diego’s Burnham-Moores Center for Real Estate, the “Do Green Buildings Make Dollars and Sense?” study took a year to complete and is the largest study of its kind to date.  The research was conducted in collaboration with Dave Pogue, CBRE’s national director of sustainability, and Ray Wong, CBRE’s director of Americas research.

The study determined that tenants in green buildings are more productive based on two measures — the average number of tenant sick days and the self-reported productivity change.  Study respondents reported an average of 2.88 fewer sick days in their current green office compared to their previous non-green office.  The research additionally showed that green buildings have 13 percent higher rental rates and 3.5 percent lower vacancy rates than the market.

Pogue comments, “The results of this project are beginning to demonstrate the very real and positive impact of sustainable buildings for both our owners and tenant occupants.  We have been seeking ways to make an empirical case for the economic benefits of sustainable practices and the results of this study exceeded our expectations.”  For its findings, CBRE and the University of San Diego surveyed more than 150 buildings under CBRE management.  Researchers defined a green building as those with Leadership in Energy and Environmental Design (LEED) certification at any level or those that bear the EPA ENERGY STAR label.

Downtown Chicago Rental Apartments Thriving

Monday, August 31st, 2009

Downtown Chicago apartment buildings – especially Class A properties – are seeing a resurgence in occupancy and rental rates as residents apprehensive about the condominium market choose to rent rather than buy.  The average effective rent of downtown apartment buildings climbed to $2.17 PSF in the second quarter, a 2.4 percent increase over the first quarter, according to a report by Appraisal Research Counselors, a real estate consulting firm.  During the same time frame, average Class A occupancy rose to 93.4 percent, as compared with 90.9 percent in the first quarter and 91.6 percent a year ago.chicagoskyline1

The statistics would be even better if there weren’t so many new downtown apartment buildings.  More than 2,098 new units have been built downtown since 2008.  Add to that the shadow rental market – condominium owners who rent their units when they cannot sell.  Many potential buyers are renting for the time being because they are concerned about falling property values and the possibility that they will be unable to obtain a mortgage in a tight credit market.

These numbers show the inherent strength of Chicago’s CBD rental apartment market — proof that downtowns continue to thrive because of the number of highly educated knowledge workers who want to live in the city.  As a result, places like River North and the Loop remain highly sought after locations for businesses looking to recruit talent.

Office Rental Rates Falling as Demand Slides: Part 1

Wednesday, January 14th, 2009

It should be no surprise that rental rates for office space have weakened as demand declines.  Nationally, rents for office space fell 1.2 percent during the fourth quarter of 2007, even though owners offered concessions such as free rent for a limited time frame to lure users.  According to Reis, Inc., a New York-based real estate research firm, rents declined in 65 out of the 79 national markets it tracks.

jump_off_cliffDuring 2008, office tenants walked away from 42,000,000 SF of space, which brought the U.S. vacancy rate up to 14.4 percent, compared with the 12.6 percent reported just one year ago.  Vacancy rates are expected to continue to rise through 2010, which will put even more downward pressure on rental rates.  Given the overall volatility of the real estate market, just how low rental rates will go is anyone’s guess.

The one bright spot is the deflationary economy, which has lowered energy prices and other commodities.  This may provide relief to owners faced with lower rental income at a time when covering their debt obligations may be a struggle.