PM Realty Chief Offers Solution to Uninspired Rental Market

HOUSTON-A slowdown in rental growth will create a steady but uninspired market for property owners in 2001, predicts Rick Kirk, president of the Houston-based PM Realty Group.

But, says Kirk, there are three things that owners who want more can do. Owners historically have relied upon market appreciation for gain. In the coming year, building owners will have to work for such gains so it will be vital to lower costs, retain tenants, and seek creative income opportunities.

The “state of the business” comments came from the head of a national firm which has utilized quality client service through employee training and cutting-edge technology to achieve portfolio growth totaling nearly 35 million sf in the past two years. “Well-run property management and leasing operations will become increasingly important to commercial property owners in 2001and beyond,” Kirk says, “as a slowdown in rental growth may make it difficult for owners and investors to achieve the desired returns through market appreciation.”

Office and industrial rents, having spiked in 1997 and 1998 before hitting a plateau in 1999 and 2000, show no signs of major fluctuation ahead,” he assesses. “The few rent spikes that have occurred in the past year have been in office markets heavy with high-tech tenants, and these markets may soften, depending on the performance of the Internet and telecom sectors of the economy.”

The investment market has been sluggish this year in comparison to the immediate preceding period as investors had grown wary of possible overbuilding in some markets, and wondering if the national economy is going to continue its hardy pace for the next several years, Kirk says. Although the problems may not materialize in 2001, he believes that investors’ concerns are not likely to go away in 2001. “Until buyers or sellers become more motivated to act, the pace of investment sales will remain stable and property values will be flat,” he says.

Tenant retention is achieved through responsive property managers; thus lower operating costs will have to be realized through increased productivity. That, predicts Kirk, “will continue to spring from technological innovations. For example, the ability to buy products and services on-line results in cost savings and also shortens the amount of time PM Realty Group must spend on procurement, both at the national level and at the individual property level.”

Creative income opportunities will become a larger focus in 2001. Some owners are using parking garages and elevators to hawk advertising space. Some are gaining extra revenue from telecommunication service providers by providing building access and renting rooftop space.

In looking to 2001 and beyond, Kirk sees a rising challenge for the commercial real estate industry in dealing with energy deregulation. “In 2001, investors will take an increased interest in the effects of utility costs on operating cost structures, and will begin to avoid areas where cost and reliability of power is in question,” he contends.

With divisional offices in Houston, Atlanta and Newport Beach, California, Kirk’s firm conducts business in nearly all of the 50 states and maintains regional offices in Austin, New Orleans, Sacramento, San Diego, Honolulu, Los Angeles, Orlando, Phoenix, San Francisco, Chicago, New York City, Dallas, Seattle, Cincinnati, Denver and Washington, D.C.