SOUTHEAST

What a difference a year makes. Commercial real estate markets in the Southeast are making steady, and sometimes notable, progress toward recovery—across all sectors. Although new development is still spotty in most markets, major metros in the Southeast are seeing financeable development plans and, in some cases, groundbreakings.

In Miami, hospitality is the name of the commercial real estate game. Large and small hotels, including the Miami Beach Courtyard Marriott, the Gansevoort Hotel, Royal Palm Hotel, as well as the Raleigh, the Standard and several boutique hotels, are trading hands. At the same time, new mixed-use developments with strong hotel components, including the $3.8 billion Resorts World Miami, are on the boards.

Suzanne Amaducci, shareholder at Bilzin Sumberg Baena Price & Axelrod, says the Miami hotel market is on fire right now both in terms of business performance and sales volume. Indeed, the Miami hotel market is one of the top 10 in the US for ADR and RevPAR growth and transaction sales volume, and many predict this performance level to continue over the next five years.

"There are many different economic indicators you can look at to confirm the growth in the industry: increased traffic at Miami International Airport, Miami being the number-one cruise port, increases in employment in the hospitality sector and the increase in sales tax revenue," Amaducci says. "Thankfully, Miami is a gateway city attracting domestic as well as foreign travelers and significant levels of investment."

Moving up the state to Orlando, office construction has stalled, but there were pockets of growth in the fourth quarter of 2011. According to CBRE, the Orlando market saw a slight increase in leasing activity as lease rates continued to fall. For the first time since 2007, CBRE reported the 2011 year-end total absorption in Orlando was positive at 582,035 feet. The hottest market is East Orlando.

"Although activity has picked up, new absorption is limited as many tenants are moving from one asset to another within Orlando," says Alex Rosario, vice president of CNL Commercial Real Estate. "We aren't seeing large numbers of new companies moving into the market, and many companies are doing more with less by using their existing space more efficiently."

Meanwhile, Atlanta is witnessing a continued surge in the medical office sector while its office market is finally regaining health. Buckhead is leading the way. According to Grubb & Ellis, the submarket saw a 70-basis-point reduction in the vacancy rate, to 24.1% in Q4. Still, Grubb reports rents continue to decline and tenant concessions are still en vogue, with free rent a standard for larger deals.

Gary Lee, a managing director and principal at Cassidy Turley, predicts sales of stabilized class A office buildings will increase meaningfully in 2012. With heated competition for trophy assets in gateways cities, he says, only investors with a very low cost of capital are able to buy assets that will produce required returns. As he sees it, pent-up demand to place capital in low-risk assets will benefit Atlanta, where high-quality assets provide increased yield and limited risk.

"On the other end of the risk spectrum, we will see the pace of distressed asset sales increase from a drip to more of a steady flow, primarily as a result of special servicers bringing more assets to market," Lee says. "As real estate fundamentals improve in Atlanta, the bid-ask spread should become more realistic as sellers examine their portfolios with a more seasoned view, and the substantial capital raised to purchase distressed properties provides a more aggressive and larger buyer pool."

Andy Litvak, a partner with Hartman Simons, an Atlanta commercial real estate law firm, says medical office buildings in the market are highly sought after by investors. Whether located on hospital campuses or standing alone in suburban areas, these properties demonstrate a strong demand that has led to bidding wars and cap rate compression.

"The strength, credit and historically low turnover of the physician-practice-group tenants, as well as the ever-present demand for medical services, make these properties highly stable," he says. "Add in an aging population and the fact that more people will be coming into the system as a result of the health-care reform—resulting in the need for more square footage—and you can see why investors are downright giddy and bullish about these kinds of properties, both in Atlanta and throughout the nation."