2012 will be a benchmark year for commercial real estate, speakers said Tuesday at the Ninth Annual Market Review presented by the Greater Richmond Association for Commercial Real Estate.
It will be the year the market turned the corner, said Jeffrey D. Doxey, president of Eagle Commercial Realty, who spoke about the retail sector.
The morning event at the Westin Hotel drew about 300 people in real estate and related fields.
We will look back at 2011 as the bottom, said Bill White, president of Joyner Fine Properties, who addressed residential real estate. We think we are on a road to recovery.
He said foreclosures will continue to vex the residential market for another 18 to 24 months, but stability has returned and home prices will begin to rise in 2013.
J. Scott Adams, president of the mid-South region for CBRE, said capital has returned to commercial real estate.
The fundamentals are improving across the board, he said. Richmond is a great place to do business.
Investment sector
Adams noted that commercial property sales in the Richmond area outpaced the nation on a percentage basis last year.
The area saw a three-fold increase over national averages, Adams said, which is exciting because it means investors believe in the fundamentals of Richmond.
Nationally, commercial property sales rose to $209.1 billion in 2011 from $129.9 billion in 2010. Locally, they increased to $603.3 million from $222.8 million a year ago.
Six property sales in the Richmond area with a total value of about $300 million accounted for more than all the sales here in 2010, Adams said.
The biggest and only local buyer among the top six deals was Lingerfelt Development, which purchased the Liberty office portfolio of 14 properties in western Henrico County for $97 million in May.
He noted that the amount of troubled loans is subsiding with lenders taking back properties and resolving or restructuring loans.
However, loans made from 2005 to 2007 will come due 2012 through 2017, presenting another challenging period, he said.
Still, real estate as an investment is beating stocks and bonds, Adams said. Our industry should continue to outperform other industries. hellip; It is the No. 1 investment alternative.
Industrial sector
Matthew Braun, a specialist with Cushman amp; Wakefield | Thalhimer, said 2011 reversed two years of negative absorption when more space is vacated than leased in the industrial sector.
The vacancy rate in the industrial sector here dipped below 12 percent in 2011, he said, noting that the national average vacancy rate is about 10 percent.
Amenities that began to creep back into deals to maintain occupants will get reversed. And the focus will be on quality tenants instead of warm bodies, Braun said.
Construction starts and finishes, essentially nonexistent last year, will change in 2012 with 2.2 million square feet of space that will be built for Amazon.com Inc.
The Seattle-based online retailer plans to invest $135 million to open two distribution centers in Chesterfield and Dinwiddie counties this year that will employ 1,350 people.
Before this year is out, we will see some other big announcements, Braun predicted.
Office sector
Jane duFrane, director of leasing for Highwoods Properties, said 2011 was the year of big deals for office space.
The biggest space taker was Mondial Assistance USA, now Allianz Global Assistance, which leased 288,560 square feet in Deep Run I in Henrico, the headquarters building for the former Circuit City Stores Inc.
The big deals helped reduce the vacancy rate in the office sector to 11.4 percent in 2011, duFrane said.
In 2011, we leased a lot of space, she said. But there werent a lot of small deals.
Richmonds typical bread and butter is 2,000 square feet to 10,000 square feet. Where were those deals?
If a company is looking for smaller office space, there is ample 731 options, she said.
She noted that most new buildings were for medical offices and they were 100 percent pre-leased.
Developers are not risk-tolerant, she said. The markets are still tight. No one is willing to go out on a limb and offer spec office space.
Retail sector
Doxey with Eagle Commercial said retail sales are expected to rise 7.7 percent this year from 2011, the strongest increase since 1999.
Even so, analysts are predicting 3,000 to 5,000 store closings nationwide this year.
As many as 17,000 stores closed in the last three years, as the weak economy took its toll and consumers pulled back on spending.
For 2012, the crystal ball is a little foggy, Doxey said. The game changers for the year if gas prices hit $5 a gallon, we will see a lot of consumers on the sidelines.
This year could see a battle for survival between JC Penney and Sears, leaving the winner to compete with Kohls. We believe it will be JC Penney, he said.
Also, Staples is likely to emerge as the strongest among the three major office suppliers, he said.
He said Regency Square still has a lot of life, even though the troubled mall was taken back in December from Michigan-based Taubman Center Inc. by the lender.
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