Scotsman Guide - September 2011 Commercial Edition

Property TypeCast
By Victor Calanog

VICE PRESIDENT OF RESEARCH AND ECONOMICS, REIS INC.

a promising firs T half for office proper Ties

It finally looks like the U.S. office market has bottomed and is beginning a slow recovery. After increasing for three straight years, vacancies began to decline for the office sector in the first half of 2011, ending at 17. 5 percent in the second quarter. Occupied stock also improved, with the market absorbing 9. 4 million square feet in the first half.

To be fair, second-quarter absorption figures of 3. 9 million square feet were markedly slower than the first quarter’s 5. 5 million square feet. This slowdown largely reflected changes that are taking place in the overall economy. Real gross-domestic-product (GDP) growth slowed in the first quarter after accelerating for two consecutive quarters. Moreover, labor-market data from the Bureau of Labor Statistics has shown a slowdown in hiring in May and June after briefly accelerating earlier this year. This inevitably affected the pace at which employers chose to lease new office space.

Source: Reis Inc.

OFFICE NE T ABSORp TION AND VACANCy

Asking and effective rents increased by 0.3 percent and 0.4 percent, respectively. Asking rents had been declining since peaking in the third quarter of 2008, while effective rents had been declining since peaking in the second quarter of 2008, before beginning to increase in fourth-quarter 2010. The rate of increase decelerated versus the first quarter, however, as asking and effective rents increased at a slower pace than the previous quarter, when they each increased by about 0.5 percent.

Nonetheless, the asking-rent increase continues to be a positive development and demonstrates that, despite recent changes in the economy, landlords remain confident enough about their prospects to move beyond adjusting concessions and continue to increase face-level asking rents, albeit slightly. Effective rents are generally keeping pace with asking rents, indicating little, if any, change in concessions. Although we expect the economy and labor markets to continue to improve and have not altered our outlook for the office market, recent developments in the economy are a stark reminder that this will be a protracted and inconsistent recovery for the office market.

12-MONTH CHANgE IN EMpLOyMENT

The most disconcerting development that may change the outlook for the near-term fate of the office market is the slowdown in GDP and employment growth in the first six months of the year. We started 2011 with GDP growth projections between 3. 5 percent and 4 percent; the Federal Reserve eventually lowered that to 3.1 percent to 3. 3 percent, and its latest numbers put GDP growth at less than 3 percent for the year. Average monthly job growth of 200,000 or more was common among forecasters earlier in the year, but with only 18,000 jobs created in June, pundits are scrambling to readjust their predictions.

Source: Bureau of Labor Statistics
We remain cautiously optimistic about the recovery in the economy and in the office market.
We expect vacancies to trend downward slowly, reaching the low 17s by the end of 2011. This
has been our forecast since early 2010. The good news is that we do appear to be emerging
from the cyclical bottom; it is just not as fast a recovery as we would hope.

Victor Calanog, vice president of research and economics at Reis Inc. ( reisreports.com), writes a monthly column on property types for Scotsman Guide. He and his team of economists are responsible for data models, forecasting, valuation and portfolio services for clients in commercial real estate. Reach him at victor.calanog@reis.com. Faruk Ozdemir, associate director for research at Reis, contributed to this article.

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Collete English Dixon 2011 PRESIDENT COMMERCIAL REAL ESTATE WOMEN NET WORK BY JENNIFER E. GARRETT

Promoting women in the commercial real estate industry is the Commercial Real Estate Women (CRE W) Net work’s mission. In 2005, CRE W Net work released a benchmark study of women in commercial real estate and followed it up in 2010. This month, the organization holds its annual convention and marketplace, and 2011 president Collete English Dixon gives us a look at what’s in store for the conference and what’s ahead for CREW Network.

What will the convention focus on this year?

The market has picked up. Transactions have picked up on the leasing and the buy-sell side. It’s time to get charged up about getting back to work. We’re talking about regaining our excitement for the industry and understanding the opportunities and the challenges that we have to deal with as the industry goes through this restart.

What have the benchmark studies revealed?

The [first study] showed that women had some good positions but were lagging in compensation and advancement. In 2010, our five-year update found some interesting disparities between how women were faring in the industry versus men. There had been some progress made, but women still have challenges advancing beyond the [vice president] level with equal compensation for equal tenure and equal work. This information will help us springboard into some new initiatives that will hopefully help us support the further advancement of women.

What new programs are you working on?

We’re partnering with Cassidy Turley to pilot a new executive-level mentoring program this year called “Bridging the C-Suite Gap.” It will be officially kicked off at the convention. There are certain mentorship and sponsorship needs that women must fill to ascend. They also need to develop certain professional and leadership skills.

What role does education play in CREW Network?

We have certain programs in leadership and professional development that allow our members to stay on top of trends and to understand what’s going on in the industry. Our Leadership Series focuses on leadership-skill development. You can’t move up and you can’t succeed unless you have a good sense of how to be a leader.

What’s important to know in commercial real
estate now?

You need to be aware of the trends. You need to be aware of what’s happening in a broader, more global sense in the industry so you can better prepare yourself or your client to deal with those things. It’s always important to continue to learn about what’s going on in your specific discipline and outside of it so you can have a holistic view and hopefully do the best job that you can for yourself, your company and your client.