This is the time of year when the analysts review the 2011 statistics and everyone whips out their crystal ball to make predictions on 2012. Last week I attended a half day conference on the Miami commercial real estate market. They had speakers on industrial, office, retail and investment sales. They also had Dr. Lawrence Yun, the chief economist from the National Association of Realtors. He described the 8 factors that show hope and improvement for commercial real estate. His indicators were:
- No recession in sight — despite a shaky European situation, he is confident we will not slip back into a recession.
- Slow but steady job creation
- Stock prices are recovering from the 2008 debacle
- Corporations have huge cash reserves
- International trade continues to expand
- Prices on commercial real estate have bottomed and are now beginning to rise
- International buyers are taking advantage of the favorable exchange rates
- Real estate is a good inflation hedge
I found Dr. Yun’s presentation very interesting. He also said that with the economy expanding and job creation slowly trending upwards, this backdrop will provide an interesting picture for the political front. One other noteworthy point he made was specific to Florida. Before the recession, we had between 200,000 to 300,000 people moving into the state. This trend stopped for the past three years, so he is wondering if retiring Baby Boomers will resume their southward migration.
Another interesting speaker was Manuel de Zarraga with Holliday Fenoglio Fowler, LP. Manny is the Managing Director of this real estate investment firm and in the past 9 years, he has been involved in $12 billion of transactions. Manny said that his “mojito index is full” and by this he means that commercial real estate is trading again.
Here are some of his highlights:
- Miami is sexy – to investors. He noted that Miami (and the U.S.) are attractive to foreign investors. “South Americans don’t buy gold, South Americans buy real estate in Miami”. Institutional investors have found that their best performing asset class over this turbulent couple of years has been real estate, so they are attracted to trophy properties in good markets.
- Sales activity in commercial real estate is going to pick up because the banks have money to lend and borrowing costs are low.
- Private investors are less active, but REIT’s are very active and doing extremely well.
- Only 15% of the sales last year were distressed. He sees a lot of debt maturing over the next two years but believes that we will manage thru the cycle without major drama. Interestingly enough, life insurance companies had virtually no defaults on their lending – less than 1%.
- Sales activity will continue to pick up and it’s a good time to borrow and borrow long because interest rates are low.
Tere Blanca, founder of Blanca Commercial Real Estate, tied into Manny’s presentation by talking about the investment environment in Miami. Tere is a past chair of the Beacon Council and her team pulled together a great presentation. Here are some of her presentation highlights:
- Office buildings are finding that banks are continuing to expand and Miami continues to be a Latin American HQ. Miami is favorable for Latin American HQ because of our quality of life, stability, education, connectivity (both travel and technological), diversity of workers, lower cost of real estate when compared to Sao Paulo and Bogota.
- Brazil is our biggest trading partner and now it has overtaken the UK to become the sixth largest economy in the world. That only means good things for Miami.
- Miami already has substantial foreign institutional investors from Spain, Germany, Mexico, Argentina, Japan, Hong Kong, Malaysia and Spain. This trend should continue.
For the nitty gritty of market statistics, the conference pulled in three veterans. My former colleague, Michael Silver, First VP with CBRE, who is an industrial legend; Diana Parker, Director with Cushman & Wakefield, who handles both landlord and tenant office leasing; and Gary Ralston, managing partner with Coldwell Banker Commercial, who discussed retail.
Mike and Gary both said the industrial and retail sectors were doing just fine. Mike’s industrial forecast was that manufacturing and cargo container shipments were going to continue to rise. This will result in rising industrial rental rates (except in the old inner core areas). Increased e-commerce and RE-sourcing (offshore jobs returning to the U.S.) will also provide increased occupancy. Currently industrial vacancy is 6.8% throughout Miami-Dade county with 7.7% in the Airport/Doral area. Rental rates are $6.79 on average. Locally he identified the following trends:
- an increase in manufacturing and energy-related uses,
- companies are increasing their inventory levels which leads to increased demand for distributions space
- e-commerce growing which increases demand for space
- an increase in local market users leasing/buying industrial product
- a flight to quality, so when companies make a move, they are improving their facilities
- landlords increasingly reluctant to blend and extend leases which provide relief to existing tenants.
Gary spoke about the retail sector and he had some interesting information. My take-aways from his presentation were:
- Consumer confidence is at 67.7 as of December 2011 as compared to a pre-recession 90.
- Wal-mart accounts for almost 13% of all U.S. non-automotive retail sales
- The top 100 retailers account for 250,000 stores and 2/3 of total U.S. non-automotive retail sales.
Now let’s get to my good friend, Diana Parker, who spoke about the office market trends. Her presentation matched my observations and thoughts on the market. Her presentation highlights included:
- We have worked our way through most of the new construction although Coral Gables has two buildings underway.
- The new construction continues to contribute greatly to vacancy rates as they push towards better occupancy levels. In fact, the delivery of several new buildings were one of the factors that increased overall year-end vacancy to 19.2%
- Leasing activity was up 19% from 2010 which resulted in rental rates beginning to bump upwards.
Overall the CCIM put together a great conference and should be commended on the quality of the speakers and the high level of attendance. You put a bunch of real estate brokers in a room together and it’s always interesting.