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Market Trends Online

February 2006

What’s Hot: Hospitality

Which segments: Midscale without food and beverage hospitality projects increased 36% year over year in 2005, while upscale select or limited service increased 35%, according to Lodging Econometrics.

Top brands for customer satisfaction: Drury Inn (midscale without food and beverage), SpringHill Suites (upscale, limited service)
Source: Market Metrix

Global Hyatt Corp. is moving into the upscale select-service segment by re-branding the 146-unit AmeriSuites hotel chain, purchased in 2005, into Hyatt Place hotels, a new brand that features a “larger-than-home guest experience.” Hyatt also recently purchased 27 Summerfield Suites hotels that it will re-brand as a new extended-stay segment. Both brands will include newly constructed hotels as well.
Image: Global Hyatt Corp.

National Sector Forecast
Multifamily’s 2006 Performance

Condominium conversions slow down.

Vacancy declines from 5.8% to 5.5%.

Effective rents rise by 5.2%.

Prices may show moderate gains past 2005’s median 19% increase to $110,000 per unit.

Washington, D.C., Phoenix, and Los Angeles have the most new product coming online this year.

Orange County, Calif., Fort Lauderdale, Fla., and Las Vegas are the top three investment markets, based on supply and demand fundamentals.

Source: Marcus & Millichap’s 2006 Annual Apartment Report

Major Markets Office Leasing Snapshot

Market	2005 rent/psf	% change from 2004	Vacancy rate	Percentage point change from 2004
Los Angeles	$29.76	+15.3%	13.1%	-1.5
New York	$44.85	+11.8%	7.0%	-1.0
Washington, D.C.	$45.47	+4.5%	6.4%	-0.4

Source: CB Richard Ellis

Supermarket Shakeup

Grocery-anchored centers’ reputation for stability and value may be fading due to the instability of the supermarket chains. National and regional grocery chains are still playing David to Wal-Mart’s Goliath in many markets, and the grocery segment is ripe for restructuring, according to Progressive Grocer. Here’s a roundup of grocery retail action:

SuperValu’s buyout of Albertson’s could close some 470 stores in Texas, Florida, Colorado, and Arizona.

Delhaize Group, which owns Food Lion, Sweetbay, and Bottom Dollar chains, plans to open 54 new stores this year including 10 in the Greensboro, S.C., market.

California-based Safeway plans $1.6 billion in capital expenditures this year including the building of 20 to 25 new stores.

Non-Residential Construction Forecast
to July 2006

*Sector*	*Growth* *forecast*
Office	5.7%
Retail/Other commercial	2.4%
Hospitality	7.2%
Industrial	10.2%
Total non-residential	4.7%

Source: American Institute of Architects

Office Condos Have Wide Appeal

Flexible zoning allowed the conversion of Beaumeade Technology Campus, a two-building, 133,000-sf office complex near Washington, D.C.’s Dulles International Airport, into office/flex condominiums that are being marketed to individual investors. Owners and tenants include Verizon, an engineering company, a church, and a health club.
Image: Penzance Companies

Secondary Market Highlights
Many commercial real estate investors have their sights set on secondary markets where lack of competition has kept prices lower and capitalization rates higher than the major investment markets. Here’s a look at how various markets are performing.

Las Vegas
Industrial: Land prices averaging $708,000 an acre and a lack of regional distribution space 100,000 sf and larger may squelch the area’s long-term industrial development. Sales prices average 70 cents psf, 25 percent higher than a year ago.
Source: Applied Analysis
Retail: Population growth and consumer spending are slowing a bit but retail development is not: 3.5 million sf will be added to the existing 42.2 million sf.
Source: Applied Analysis

Washington, D.C., metropolitan area
Office: The 2005 average CBD sales price was $413 psf; suburban Maryland, $219 psf; and Virginia, $271 psf. During the past two years, German investors have turned from buying to selling, and New York and Australian investors have stepped up local holdings.
Source: GVA Advantis

Orange County, Calif.
Industrial: 4Q05 vacancy rates were down almost 20 percent from a year ago, hitting a record low of 3.3%. The county will lose 1 million sf of industrial space over the next two years to residential projects, putting additional pressure on lease rates and sales prices.
Source: Voit Commercial Brokerage
Office: As of 4Q05, landlords saw eight consecutive quarters of positive lease growth. The total amount of available office space is down 25 percent over last year, with 1.2 million sf under construction.
Source: Voit Commercial Brokerage

Oklahoma City
Multifamily: The majority of 2005 buyers were from California, boosting the area’s total sales volume to $217 million, a 9 percent increase over 2005. Of 80 transactions of buildings with 25 or more units, the average sales price was $24,262 per unit.
Source: Commercial Realty Resources Co.

Tulsa, Okla.
Multifamily: 2005 deal volume was $142 million, a $50-million increase over 2004. The biggest gain was in properties built during the 1980s: 12 transactions had an average unit price of $33,343, compared with four 2004 transactions with an average unit price of $30,100.
Source: Commercial Realty Resources Co.

Indy Buyers Evenly Split
Industrial and office property buyers are fairly evenly divided between real estate investment trusts, national and local investors, according to Colliers Turley Martin Tuckers’ Indianapolis Market Report.

Indianapolis Industrial Buyers
33% private REITs and TIC syndicates

37% private national investors

30% private local investors

Indianapolis Office Buyers
32% public REITs

33% private national investors

22% private REITs and TIC syndicates

13% private local investors

Market Trends Online is written by Sara Drummond, senior editor of Commercial Investment Real Estate. Read CIRE’s Jan/Feb 2006 print Market Trends column.