Market Data

Southeastern Stamina

The region's markets display the ability to withstand storms.

D espite the chaos that Mother Nature rained upon the Southeast in 2005, the region's markets have persevered through the storms. Florida real estate prices will rise due to higher insurance costs and taxes, predicts Henry Fishkind, president of a Florida-based economic consulting company. While long-term effects remain to be seen, most markets have resisted dramatic changes. For example, while new multifamily development has decreased in southern Florida, condominiums still are seen as healthy investments. In Fort Lauderdale and West Palm Beach, Fla., median apartment prices rose 25 percent last year to $96,500, according to Marcus & Millichap.

Northern Kentucky quickly is becoming a hotbed for corporate real estate expansion. Recent developments include Fidelity Investments' new 350,000-sf building in Covington, Ky., representing a $115 million investment, and FedEx Ground's $70 million package-handling facility in Boone County, Ky.

The Atlanta industrial market is showing steady improvement. While vacancy still is relatively high, 15 percent at the end of 2005, an active leasing market and decreasing speculative construction should lower that figure. Similar vacancy drop-offs are expected in southern Florida as demand for biotechnology space in North Palm Beach County increases and Miami continues to attract investors, predicts Marcus & Millichap.

In Charlotte, N.C., high demand for condominiums has driven the conversion of apartments and apartment vacancy rates decreased more than 4 percent in the past year according to Carolinas Real Data. Experts predict the trend will last well into this year.

In Washington, D.C., and northern Virginia, office markets continue to perform well with rising rents and low vacancies. A recent increase in speculative office construction in Richmond, Va., has been met with considerable pre-construction commitments, according to Southeast Real Estate Business. Demand for medical office space has been especially high in the area.

In South Carolina, retail markets saw increased demand for space and consistent absorption, according to Colliers Keenan. National tenants that have saturated other southeastern markets are eyeing lease space in Greenville, S.C., according to Grubb & Ellis.

Markets will continue to improve throughout the Southeast this year. Robust activity will continue in the multifamily sector, while retail and office will follow the flow of job and population growth.

LEXINGTON, KY.
Industrial Absorption

With the decline in the tobacco industry, Lexington's industrial market finds itself with warehouse space available for redevelopment, Southeast Real Estate Business reports. Some of these properties have been purchased for condominium conversion and mixed-use projects. Others will be used by the University of Kentucky for classroom space or parking lots. Prices have risen above normal market value due to these properties' development potential.

Lexington's industrial market typically has consisted of distribution space, but the University of Kentucky plans to attract more technology and research and development companies. Coldstream, the University's largest research and development facility, now is occupied by Toyota Motor Manufacturing and Lexmark International, Lexington's largest employer, among other tenants.

Lexington was voted the 11th "best place for business and careers" in 2005 by Forbes based on factors such as operating expenses, cost of living, and population education levels. Lexington's location near several major interstates also adds to its appeal. In the last three years, approximately 74 manufacturing companies have moved into the city, adding nearly 1,000 jobs and more than $97 million, according to the Kentucky Cabinet for Economic Development.

Small industrial users especially are active in the Lexington market. Some are occupying multitenant sites, while others are seeking to buy their own properties according to Southeast Real Estate Business. Continued absorption is expected throughout this year.

NORFOLK, VA.
Hospitality Heats Up

With its historic significance and increasingly metropolitan downtown, Norfolk, Va., soon will have a new reason to attract visitors. A public/private partnership is planning a mixed-use development featuring a 240-room Hilton hotel, 5,000 sf of retail and dining, 70,000 sf of conference and meeting facilities, and 50 to 60 condominiums. The project, funded by the city of Norfolk, RLJ Development LLC, and Fulco Development, is expected to cost $104 million. The conference center, as well as a garage, will be funded using $61 million from the city's parking and tax revenues, according to Hampton Roads.com. The hotel, which will be funded by the development companies, is estimated to cost at least $43 million.

The Hilton will add to Norfolk's burgeoning hospitality market, which includes 52,000 hotel rooms and a new $36 million cruise terminal to be completed this year. Occupancy of the redeveloped hotel is expected in 2008.

Photo caption: Several hospitality developments are planned for Norfolk, Va., including a new cruise terminal to be unveiled later this year.
Photo credit: Norfolk Convention & Visitors Bureau

SOUTH CAROLINA
Small-Town Expansion

Where the rural five-square-mile town of Hardeeville, S.C., once stood a town larger in both population and acreage soon will exist. A recently annexed land parcel of more than 18 square miles, formerly known as Argent West and Argent East, makes Hardeeville one of South Carolina's 10 largest towns in terms of acreage. The additional land will be developed into a planned community called Tradition, S.C., adding more than 21,000 new homes and 1,470 acres of commercial space, according to islandpacket.com. Fort Lauderdale, Fla.-based developer, Core Communities, purchased the land for $41.6 million and expects the build-out to take several years and phases. The first phase features a planned community with approximately 1,500 homes and two mixed-use developments. In total, the land can accommodate up to 9,500 residential units and 1.5 million sf of commercial space, according to Core Communities. Similar to the nearby resort towns of Hilton Head Island, S.C., and Bluffton, S.C., Tradition most likely will draw a primarily retired demographic

CCIM Market Snapshot
Florida continues its population growth of 1,800 net people per day, and all major cities are experiencing unprecedented land sales led by residential, retail, and mixed-use development. Similarly, office and industrial vacancies have tightened to almost equilibrium levels with an upswing in planned development for both products in 2006. Investment sales in all product types are still running red hot with a significant number of trophy properties changing hands in the last two years.

-Thomas E. Hankins, CCIM, president, Realty Capital Hankins Group, Orlando, Fla.

SOUTHERN FLORIDA
Office Perseveres

  • Electricity expenses will rise this year due to increasing energy costs, which may top $1 billion, estimates Juno Beach, Fla.-based FPL Group.
  • Construction will be affected by rising costs as equipment expenses increase concurrently. New construction will be further reduced by the labor force moving into other Gulf Coast cities to participate in rebuilding efforts.
  • In Miami-Dade County rents steadily have increased since year-end 2004. In 4Q05 the trend continued as rents rose to $24.67 psf.
  • Even though Miami's central business district lost 12 percent of its inventory in Hurricane Wilma, asking rents rose 0.3 percent and vacancy rates fell 0.92 percent in 4Q05.

Sources: Studley Report, Codina Realty Services, CB Richard Ellis

ANNAPOLIS, MD.
Retail Redevelopment
The Parole Plaza Shopping Center revolutionized the way Annapolis residents shopped when it was constructed in the 1960s. It was home to Annapolis' first department stores, meaning residents didn't have to trek to Washington, D.C., or Baltimore to do their upscale shopping. But, like many regional malls, the Parole Plaza met its demise in the 1990s and has been vacant until recently. In December 2005 ground was broken for the Annapolis Towne Centre at Parole, which will occupy the 35-acre site of the former Parole Plaza. The mixed-use redevelopment will feature 674,850 sf of retail, 91,111 sf of office, 90,000 sf of hospitality, and more than 1.2 million sf of residential, according to consulting company Greenhorne & O'Mara. So far, tenants include a 140,000-sf Target and a 75,000-sf Whole Foods.

Photo caption: Annapolis Towne Center
Photo credit: Greenberg Commercial Co.

WASHINGTON, D.C.
Office Indicators

  • The Department of Defense's decision to move many employees to office properties on three Virginia military bases over the next six years will have a profound effect on the metropolitan area's office market. The DOD currently leases 11 million sf in northern Virginia, 4 million sf of which is in Arlington/Crystal City, Va., representing one-third of the submarket's inventory.
  • 5.2 million sf was delivered through new development in 2005, an 11 percent decrease from 2004. A 550,000-sf corporate center is planned for Prince William County, representing the trend of offices moving into the submarket to avoid long traffic commutes.
  • Vacancy decreased by 40 basis points last year to 10.6 percent. In the Crystal City submarket, vacancy was 11 percent at the end of 2005, but most likely will rise as the DOD begins to leave the area this year.
  • Strong sales rates defined 2005, and the area still is seen as a wise investment choice. There is stiff market competition with prices rising as high as $500 psf in areas such as downtown, Capitol Hill, and DuPont Circle.
  • Rents also are on the rise. Asking rents rose 2.2 percent last year to $30.66 psf and effective rents gained 2.4 percent to $26.55 psf.

Source: Marcus & Millichap, 3Q05

MIAMI
Condo-Hotel Makeover

The 1930s Breakwater and Edison hotels in South Beach, Fla., recently received a $20 million redevelopment loan to convert the landmark properties into one condominium- hotel. The art deco buildings will feature 95 units ranging in price from $509,000 to $893,000, including a penthouse unit, and renovated pool and sundeck.

Photo credit: Aztec Group

Carolyn Bilsky

Area report is written by Carolyn Bilsky, associate editor of Commercial Investment Real Estate. Contact her at (111) 111-4507 or [email protected]

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