Which Sector Is Getting Hit Hardest?

|

This week's Quick Poll shows many people think retail isthe industry being hit hardest by the sluggish economy, with 51%respondents selecting that sector. Both office and multifamily werethe next popular choices, each garnering 21% of the votes, followedby industrial with 6% of the votes.Jim Kruse, a senior managingdirector working out of CB Richard Ellis' Beverly Hills offfice,differs with the poll populous.

|

Our investment business in the office sector has gotten kickedin the head. There are three groups in the office sector right now:Number one, the group that has put properties on the market andthat have not gotten the offers they wanted so they pulled theirproperties off; number two, are the people who put properties onmarket at yesterday's prices, like June of 2007 pricing. And theyjust have failed to really embrace to today's pricing, failed torecognize that pricing, and so those properties languish on themarket. Third, there's the segment where transactions are gettingdone. Where people are finding the cracks in the market and fillingin those cracks. They're looking in West Los Angeles, where thereare not a lot of huge blocks of space available, but they findopportunities where they can assemble parcels. Or they're lookingat office buildings that might have a significant rollover.

|

But all in all, I think the office building business has beenhit the hardest. I'm not going to take away from the fact thatthere has been some retailers that are circling the drain rightnow. The housing slump, rising fuel prices, soaring food costs—theconsumer right now is getting kicked around.

|

However, if you think about it, over the last five years officebuildings have been the investment darling. They've performed well;rents have continually climbed to the point where cap rates andreturn on these buildings was in the 5% level. And now these guysthat are selling these buildings still want these 5% cap rates. Andthat 5% cap rate just is not acceptable anymore. You can't makemoney paying a 5% cap rate for that building. In today's market,you better be looking at a 6.75% to 7% cap rate..

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.