The continuing theme of my posts have been about the state of the market as I see it. Since I receive a number of calls each week about this subject it seems to be on the forefront of most peoples minds.
First, office and small industrial sales are almost non-existent. I have condos at prices well below replacement cost with little or no interest. Until small businesses have confidence in the economy and lending I do not see this changing. This group does, however, continue to pursue discount leases on short terms to keep their options open and reduce risks. Thankfully, the "fear factor" that was persistent last year seems to have disappeared and businesses are either gone or have adjusted to the new reality. Retail leasing and large industrial deals seem to be picking up. Loopnet, a major commercial database is showing a leveling off in lease rates and Costar is calling the bottom, for at least the industrial market, as last Spring.
According to Costar the industrial absorption has turned positive in all but one of the markets they track for the first time in six quarters. Their prediction for an increase in price growth is that it is still a year or two away. One positive note to their article is that new deliveries of space are at historic lows due to the lack of financing. This will enable a quicker rate recovery. According to their data the industrial vacancy rate is 10% with the actual space being marketed at almost 15%.
For the Charlotte office market the Costar report says the vacancy rate increased in the second quarter of 2010 to 15.18% from 14.56% for the previous quarter. Of the major markets they track about half are showing signs of improvement. Again, one positive factor is deliveries of new space are getting to record low rates. An odd prediction; due to conversion and obsolescence some markets may experience a negative inventory growth in 2011 and 2012. That means markets are actually shrinking!
What about investment sales? I know they are out there as there are brokers looking for clients. The numbers of lookers seems to be lower than I would expect in this market. As I have pointed out in the past, once the perception of a bottom has occured there is usually a flurry of investors in the market for 2-3 years. What will the flurry look like this time around? It's hard to say but investors may not be sitting on the hoards of cash they were in the mid 90's.
Many of you are thinking about how to cut overhead on your properties. Taxes and insurance are obviously the major components. Now is the time to consider an appeal on your RE taxes if you have not seen a readjustment. Also, review your insurance for possible areas of savings.
The tax law changes slated to take effect at the new year are also a popular topic. For those who live off of investment income and capital gains rather than employment income things may change dramatically. Capital gains rates will rise from 15% to 20% and the dividends tax will rise from 15% to almost 40% with another increase two years later. Many rules for small businesses regarding expensing and depreciation will also change. Personal tax rates will rise across the board with the highest rate moving from 35% to almost 40% and exemptions/deduction will change. It's time to get educated and start planning.
For those thinking of liquidating property over the next year or two it may be a good time for us to discuss the benefits of IRS 1031 exchanges and rules for installment sales. Both of these are great ways to help avoid the tax bite. I can get you started in the right direction prior to costly discussions with your tax attorney or accountant.
How can I help you in the realm of commercial real estate? Feel free to give me a call. Thanks for reading!
Tadd Holzen
704-458-5552
