GlobeSt.com EXCLUSIVE: Slower Second Half May Open Niches, CORFAC Predicts

"Commercial property investors are eyeing bargains and they are taking a generally conservative approach," CORFAC president Christopher Kinum, a Garibaldi Group broker in Chatham, NJ, tells GlobeSt.com.

"Interest rates are at their lowest in more than a generation; new development in most markets is limited and that and other economic considerations are very favorable to commercial property investment generally."

For small regional companies still in a growth cycle, "there are some excellent opportunities to be found in most markets," Kinum says.

Growing investor activity and increased specialization in subleasing and tenant representation sectors could bolster transaction volumes in many markets, he says.

CORFAC surveyed 50 top North American markets and 80 markets worldwide for its report. Kinum tells GlobeSt.com the survey shows no clear national pattern even as member firms "saw record growth in commercial real estate leasing and sales transactions through the first quarter of this year.

"Most commercial property experts are keeping a close eye on third-quarter transactions," he says.

In Houston for example, J. Michael Boyd, a partner at Boyd Page Real Estate Services, told CORFAC researchers that retail transactions look strong. "Major retailers who are here are expanding and retailers who aren't here are looking for space," Boyd says.

Top transactions at Boyd Page so far this year include property sales and assembled sites for a Wal-Mart, a Sam's Club store, a Kohl's-anchored shopping center and a new Sears Great Indoors Store.

"April was up more than 100% over last year and since January we are ahead by about 60% over 2000," Boyd says.

Central Florida is another regional hot spot. Commercial lease and sale transactions during the first quarter at Realvest Partners Inc., for instance, were up 14% over the same period in 2000.

Realvest Chairman George Livingston says he initially projected 2001 transactions would equal last year's record pace but "it appears significant new business--including a seven-year lease on a 121,000 sf, build-to-suit facility valued at nearly $5 million--may break the curve upward.

"We project our transactions this year will exceed $108 million," Livingston says. In 2000, the firm negotiated transactions valued at more than $95 million. Telecommunications, high tech and warehouse and distribution centers are growth leaders, he says.

Realvest's build-to-suit transaction--where construction just started--is an e-commerce fulfillment center for a major grocery chain.

In Denver, John Bitzer, founder and chief executive officer of Bitzer Real Estate Partners Inc., says large office and industrial tenants began postponing space decisions or downsizing their plans last November.

"Most new construction under way now is already pre-leased," Bitzer says, but vacancy rates could climb into the teens in some submarkets toward the end of the year.

Still, the market is creating some opportunities. Bitzer says listings and especially sublease transactions are strong. Class B office space stabilized after a 5% to 10% drop, he says, and class A space is holding steady.

In Nashville, the situation is similar. Terry W. Smith, principal at Mission Property Co., says sublease opportunities have increased "significantly" as a result of flattened office market that saw 50,000 sf absorbed in the first quarter against more than 400,000 sf during the same period last year.

Smith feels Mission Property's volume will likely increase during the second half of the year, although projections are down about 15% from last year.

In Washington, DC, Tim Gallagher says first-quarter leasing and sales transactions at Donohoe Real Estate Services Inc. were up more than 21% over last year and second quarter transactions remain strong, but many current transactions have been in negotiation since January.

Gallagher expects office lease transactions to slow. "Our tenant clients are deferring space decisions due to market conditions," he says. "In some areas, owners are granting tenant concessions.

Investment activity may turn out to be a bright spot in the metro-DC area, Gallagher says.

"Buyers have adjusted their investment strategies to reflect a softening in the market, higher vacancies and increasingly conservative funding sources," the broker says. "Sellers, for the most part, have not."

While this presents occasional challenges in closing sales transactions, Gallagher says, sellers should begin adjusting expectations soon. "We could see some significant new activity in investment acquisitions and sales," he says.

CORFAC found first-quarter transactions "surprisingly strong" in Detroit, where Friedman Real Estate Group, Inc. saw a 30% increase over the same period last year.

David S. Greene, vice president of brokerage sales at Friedman, says second-quarter volume should surpass last year's, but he expects leasing transactions in the third and fourth quarters to taper.

"We don't expect to exceed last year's growth during the second half of 2001, "Greene says, "but we expect to maintain our volume through the end of the year."

Michael B. Jacobus is taking a pragmatic attitude at McBride Corporate Real Estate Inc. in Franklin Lakes, just north of Passaic, NJ.

"Our sales volume during the first quarter was up more than 15% over the same period last year and we are maintaining about the same pace for the second quarter," Jacobus says. But, he concedes, "It's getting more competitive."

After eight years of increasingly dynamic growth, Jacobus says, it may be time for a little breather.

"We anticipate a slower market through the end of the year and I've even suggested to some of our sales executives this might be the perfect opportunity to take one of those long lazy vacations we've all been promising ourselves," he says.

CORFAC is a global alliance of commercial real estate services companies. Collectively, they handle about $10 billion in real estate transactions annually. Last year, the network logged 6,700 sale and lease deals comprising 395 million sf of office, industrial, warehouse, flex and research/development space in North America alone.