Area Industrial, Office Prices Soar

Prepared by senior brokers W. Colin Cavill and Dennis Mitchell, the Colliers Cauble material shows office buildings selling from an average $118 per sf in 2002, dipping to $108 per sf in 2003, and then shooting up to an average sales price of $140 per sf in 2004 for a 25.7% increase over two years.

Industrial properties had no down side, trading for about $31.50 per sf in 2002; $35.50 in 2003; and $40 in 2004 for a $13.2% increase. Investors last year swamped the area with 127 industrial sales and 102 office sales. Volumes in both categories are up. Industrial sales totaled 116 in 2003 and 111 in 2002. Office sales totaled 73 in 2003 and 45 in 2002.

In the office category, the brokers predict "record pricing will be maintained" because "ready capital is available [from lenders] to invest." Tenant-in-common purchases will continue to rise and class B buildings will be sold in higher volumes. "The office leasing market is rebounding in pockets," the report notes. Transaction volume was up 130% in 2004 and is expected to be higher this year.

Private buyers dominate the office investment market, making 54% of the acquisitions, according to the Colliers Cauble data. Institutional buyers make up 28% of the market with REITs accounting for 18%. Of the 102 properties sold last year, 56 or 44% were class B assets; 39 or 38% were class A buildings; and seven structures or 7% fell in the class C column.

In the industrial category, Cavill and Mitchell caution "brisk construction could cause an oversupply." At the same time, the brokers expect to see increased pricing, tenant-in-common structures to gain ground and capital inflows to continue.

"Leasing activity is increasing" and is currently ranked "the best in the nation," the Colliers Cauble data shows. Transaction volume is up 22% from 2003. Like the office side, private investors dominated play in 2004, acquiring 57% of the for-sale properties; institutional buyers followed with 29% market share; and REITs made up the remaining 14% of buyers.

As expected, warehouse properties topped the buying lists of investors, making up 48% of the sales on 61 properties. Flex properties followed with 28% or 36 properties sold; and shallow-bay structures, a growing favorite with investors, accounted for 30 sales or 24% of the total 127 transactions in 2004.

"We see the continuance of investor appetite to secure real estate opportunities on a risk-adjusted basis," Cavill tells GlobeSt.com. "Over time, real estate, as an asset class, is second to none."

The broker says the underwriting controls "by all lenders are making sure that real estate is being kept in check." On the CMBS front, Cavill says "all lenders who securitize their loans are very diligent on all matters to make sure the deal can be sold on the open market to bond investors, and that is why, in the $90,000-loan CMBS universe, the delinquencies are so low, around 1.2%."