West
Palm Beach, Fla. -- Commercial real estate markets
worldwide are beginning to show the effects of an economic
slowdown that started in the U.S. and has quickly spread,
according to the 23rd annual Global Market Report
just released by NAI Global, to which NAI/Merin Hunter Codman
contributed. NAI/Merin Hunter Codman is the largest commercial
real estate brokerage firm in Palm Beach County. After several
years of strong and often spectacular growth, transaction
volume declined precipitously in 2008 and market fundamentals
began to weaken as a lack of capital and a lack of confidence
forced investors and corporate tenants to the sidelines.
Several
markets registered strong growth in office rental rates during
the first half of 2008. However, absorption turned negative in
many major property markets during the second half of the year
as companies collapsed, retrenched and put expansion plans on
hold, leading to rising vacancy rates and declining rental
rates in most property sectors. Further erosion is expected in
2009 as slack demand and a growing supply of sublease space
and shadow space — surplus inventory that is yet to be put
back on the market — push vacancy rates higher and put
downward pressure on rents.
“The
ongoing housing slump is having a ripple effect across the
entire real estate market in Palm Beach County,” said Neil
E. Merin, Chairman of NAI/Merin Hunter Codman. “With almost
15% of the state’s economy related to residential sector,
the silver lining is that housing will become more affordable,
relieving some of the strain on household budgets and paving
the way for a rebound in discretionary spending.”
Jay
M. Grossman, President of NAI/Merin Hunter Codman noted that,
“Investment sales transactions slowed dramatically as the
spread between “bid” and “ask” widened.” Grossman
said cap rates for sales have risen from being under 6%
previously to now over 7%.
Palm
Beach County
In
the office market in Palm Beach County, according to
information NAI/Merin Hunter Codman, vacancies increased as
tenants downsized and many are requesting rent rollbacks.
Rental rates have remained flat or are declining. The
effective average rent for Class-A office space is $34 and the
vacancy rate stands at 18%.
The numbers for suburban space are $26 and 20%
respectively. Of the three general office markets – Palm
Beach Gardens, West Palm Beach and Boca Raton – Palm Beach
Gardens remains the strongest, though all three have seen
declining demand and increasing vacancies. There are a small
number of modest-sized developments scheduled for completion
in 2009.
In
the retail market, vacancies are on the rise, putting downward
pressure on asking and effective rents. New construction
starts are also down. Approximately 750,000 square feet was
delivered in 2008 of which the majority, 400,000, is in
Boynton Town Center. Other openings included Kohl and Canyon
Center in West Boynton Beach. In 2009, Kohl’s and Dick’s
Sporting Goods will enter the Wellington sub-market at Shops
at Southern.
The
industrial vacancy rate in the county increased every quarter
since the third quarter of 2007, hovering at 8.9% at the end
of the second quarter. Negative net absorption is expected
into 2009 with downward pressure on rents.
Miami
According
to the NAI Global report, Miami is not faring much better with
office vacancy rates rising and likely to top 20% by early
2010 with significant sublease space entering the market.
Industrial tenants are relocating north and west to
realize lower costs. Investment
sales activity is down as capital sources vanished toward the
end of 2008. Retail
vacancy rates have increased to 3.5% and are expected to rise
in 2009 while rental rates remain flat.
Global
Markets
“Markets
from New York to New Delhi are seeing a rise in unemployment,
a fundamental shift in financial industry practices,
plummeting asset values and companies retrenching while
grappling with debt and the prospect of declining markets,”
said Jeffrey M. Finn, President & CEO of NAI Global.
One
bright spot is that many commercial real estate markets were
at record highs for both occupancy and rental rates when the
slowdown began, and may be better able to withstand a severe
recession than during previous downturns.
“The
U.S. is in recession, as is much of Europe and parts of Asia,
as global markets adjust to the change in credit lending,
record-setting unemployment, volatile energy prices and the
resulting drop in consumer demand,” said Dr. Peter Linneman,
NAI Global Chief Economist and Principal at Linneman
Associates. Linneman is also the Professor of Real Estate,
Finance and Public Policy and founder of the Real Estate
Department at The Wharton School, University of Pennsylvania.
“What was globally envisioned in the summer of 2007 as a
brief adjustment across the market has now become a massive
restructuring with new development projects being placed on
hold, property owners looking for new opportunities with
existing inventory, sales and rental rate declines in nearly
all sectors and vacancy rates that are setting records in some
markets. The next
12 to 18 months will redefine industry practices for the
coming decade.”
Few
countries have been immune to the effects of the global
economic crisis. However,
parts of Latin America and Asia outperformed their global
competitors in 2008. While
the U.S. and Europe faced recession, China posted 9% growth in
GDP in the third quarter.
Latin America, bolstered by new raw material
discoveries and an increase in manufacturing, also resisted
the global trends in 2008.
The
2009 Global Market Report includes market data for more than
200 markets worldwide. For a copy, please contact Desiree
Porcaro at NAI/Merin Hunter Codman at tel: 561-471-8000; email
dporcaro@mhcreal.com.
About
NAI/Merin Hunter Codman
NAI/Merin
Hunter Codman, www.mhcreal.com, is the largest commercial real estate
brokerage firm in Palm Beach County, Florida with over two
decades’ experience advising on strategic acquisitions,
dispositions, tenant representation, leasing and comprehensive
property management. The firm advises on all commercial
property sectors from office and industrial to retail,
multifamily and land. NAI/Merin Hunter Codman has among its
client base some of the nation’s most prestigious
institutional and private investors and through the NAI global
network, can facilitate property transactions around the
nation and the world, serving as a single point of contact for
counsel and execution. NAI/Merin Hunter Codman is
headquartered in West Palm Beach with regional offices in Boca
Raton, Palm Beach and Palm Beach Gardens.
About
NAI Global
NAI
Global is one of the leading commercial real estate services
providers worldwide. Headquartered in Princeton, New Jersey,
NAI Global manages a network of 5,000 commercial real estate
professionals and 325 offices in over 55 countries, and
completes over $45 billion in annual transaction volume.
