Office Experts: 'Market is in Transition'

"Activity levels have picked up and we're seeing more capital coming into the market that wasn't there during the early part of 2009," comments Gary Carr, executive vice president with CB Richard Ellis' Dallas office. "We definitely feel the market is in transition."

"Caution is in the wind," adds Jack Crews, managing director with Jones Lang LaSalle's Dallas office. "But there's definitely a desire and a thirst to start doing real estate deals again. It will take a little bit of time to get the engine going again."

More product is coming to the market. Even better is that institutional owners are starting to respond to what they see, mainly because of the perception that the market's bottom has been reached in terms of price. Furthermore, the discrepancy between the seller ask and the buyer offer is shrinking, a trend that's going to continue throughout the next year, Carr and Crews say.

Carr says today's capital is drawn to a few things; high-quality, well-located, stable assets. At one time, vacancies were considered a great value-add ploy. But not any more. "It's hard to sell vacancy," Carr comments.

It's also hard to sell what Crews dubs as "commodity" assets, in other words, buildings thrown up during the boom times, but aren't very well located or well-tenanted. The class C assets are the ones that are losing value, he notes.

Though capital is cautiously starting to creep back into the market, especially for quality assets, Carr and Crews caution that problems are still ahead. For one thing, defaults and foreclosures are likely to be on the rise throughout 2010. The lesser quality assets will be the ones especially hard-hit with defaults and foreclosures, Crews predicts.

But there's a bright side to that. "We'll see more qualified investors coming into the market," Carr explains. "These investors believe the economy is turning the corner, and are getting ready for it with investments."