March 13, 2011—Commercial real estate glass half … something

By Dale Quinn

ARIZONA DAILY STAR

March 13, 2011

After two years of gloomy talk about commercial real estate, local brokers are feeling glimmers of optimism.

While landlords and sellers in all market segments – retail, office, industrial and multifamily – are still nagged by languishing property values, brokers say activity across the board has increased. In other words, their phones have started ringing again.

Details emerged at a forecast competition hosted last week by CCIM’s Southern Arizona chapter. CCIM, which stands for Certified Commercial Investment Member, is an organization of commercial real estate professionals.

The outlook by sector

“It feels like two steps forward, one step back. We’re making progress, deals are getting done, but just when I get a property close to full, a tenant moves out. The good news is – especially as of late – things are picking up,” said David R. Carroll of Romano Real Estate.

As an example, Carroll highlighted North Oracle Road just south of Tucson Mall where Ultimate Electronics and Borders bookstore are shutting down. In the same area, at a shopping center called The Corner under construction at North Oracle and West Wetmore roads, a Nordstrom Rack, Five Guys Burgers and Fries and Paradise Bakery have plans to open.

Retail
2010 vacancy
10.6%
Brokers’ predicted vacancy for Dec. 2011
11%
David R. Carroll,
Romano Real Estate:
8.4%
Nancy McClure,
CB Richard Ellis:
8.3%
Andy Seleznov,
Larsen Baker LLC:

Office
2010 Vacancy
13.9%
Brokers’ predicted vacancy for Dec. 2011
Tari Auletta, Grubb & Ellis:
14.9%
Thomas J. Nieman, PICOR Commercial Real Estate Services:
13.5%
Bruce Suppes, CB Richard Ellis:
16.5%

• Average size of leased space has decreased from about 2,500 square feet to 1,000 square feet, said Tari Auletta of Grubb & Ellis. Rents have dropped and tenants are looking for shorter-term leases, she said.

“The good news is we are seeing so much activity in the market right now, just everywhere,” Auletta said. “They’re calling about signs and that hasn’t happened in a long time.”

Industrial
2010 Vacancy
12.9%
Brokers’ predicted vacancy for Dec. 2011:
Ron Zimmerman, Grubb & Ellis:
11%
Dave Gallaher, Tucson Industrial Realty:
10.9%
Brandon Rodgers, CB Richard Ellis:
10%

• The industrial market should begin to strengthen this year, said Ron Zimmerman of Grubb & Ellis, though tenants will still be looking for concessions and rent reductions. Many tenants will be looking to relocate, downsize or consolidate their operations to save money, Zimmerman said.

“The typical users in our market last year that took a hit were the small companies, and they kept fleeing out of the market,” he said. “This year I’m seeing an influx of smaller companies coming back into town.”

Multifamily
2010 Vacancy
10.2%
Brokers’ predicted vacancy for Dec. 2011:
Mike Chapman, CB Richard Ellis:
9%
Art Wadlund, Hendricks & Partners:
9.7%
Justin Lanne, Grubb & Ellis:
9.2%

• The apartment market saw a turnaround in 2010, said Mike Chapman of CB Richard Ellis. Investors moved off the sidelines and started buying distressed properties, he said.
Vacancy peaked at the end of 2009 with positive absorption through 2010.

“Tucson continues with the dubious distinction of having the second-lowest rental rates in the entire West,” Chapman said.

Contact reporter Dale Quinn at [email protected] or 573-4197.

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