NAI Global - Commercial Real Estate Blogs

Chicago Adjusts to Economic Downturn - Part 2

This is part two of a two-part series on the commercial real estate market in Chicago.  Today's post features the office market.

Chicago's downtown area is seeing its lowest office vacancy rate in seven years, but the 10.44% rate is slightly misleading.  Leasing activity overall has driven the vacancy rate down, but sublease vacancy rates are on the rise, creating an overall market vacancy rate of 19.60%.

As three new office towers come online in 2009, another 3.6 million SF of office space will impact the downtown market.  Expect vacancy rates to spike in several submarkets as relocations get underway.

The recent collapse of Washington Mutual (WaMu) and its subsequent sale to JP Morgan Chase will impact the North Suburbs and East-West Corridor markets where the savings and loan leased two large blocks of office space.

Overall, most areas will see a halt to rental rate increases and a return to more aggressive concession packages.  Combined with a projected increase in unemployment, the market will also face an increase in vacancy rates over the next few quarters.

The Chicago office market is thoroughly examined in NAI Hiffman's Third Quarter Office Report, which can be downloaded for free at www.hiffman.com.

Chicago Adjusts to Economic Downturn - Part 1

This is the first of a two-part series on the commercial real estate market in Chicago.  Today's post features the industrial market.

Chicago's industrial market is, in many ways, telegraphing the industrial markets of a number of cities across the U.S.  The city's industrial vacancy and asking rates are on the rise, and in areas like the O'Hare market which has doubled in value, high vacancy rates are becoming the norm.

New construction of warehouse and logistics space is on the decline; spec building is down significantly and developers face heavy competition for specific build-to-suit projects.  Intermodal rail, growing as a popular distribution method in light of energy costs, is expanding in Chicago, driving growth in the I-80 corridor.

Investment sales are down 39% year-to-date, greatly impacting tertiary markets that rely on private investors.

The Chicago industrial market is thoroughly examined in NAI Hiffman's Third Quarter Industrial Report, which can be downloaded for free at www.hiffman.com.

NAI ReStore Named Exclusive Agent for Dubai Global Village Shopping Pavilions

Landlord representation and leasing agent for Far Eastern, European and African shopping pavilions within third largest cultural themed destination in the world

NAI ReStore, the retail arm of NAI Global, has been named the exclusive landlord representative and leasing agent for three cultural pavilions within Dubai’s Global Village at DUBAILAND®, a multi-billion-dollar interactive and cultural entertainment theme park slated to open in Dubai in late 2009.

NAI ReStore will represent the Far Eastern, European and African pavilions. Each pavilion hosts unique continental merchants, craftsmen and restaurateurs as well as live entertainment and immersive shopping experiences culturally relevant to each region of the world. Global Village, a member of Tatweer Dubai, the development arm of Dubai Holding, selected NAI ReStore for its extensive global retail experience and market coverage. NAI ReStore is well-known for working not only with significant global brands but also the unique local continental retailers who will become the primary tenants in Global Village. With 325 offices in 55 countries, NAI Global operates the world’s largest managed network of commercial real estate services firms.

“Dubai is a centrally located, business-friendly retail hub with a growing economy,” said David Solomon, President of NAI ReStore.  “DUBAILAND® is destined to become one of the top three culturally themed vacation destinations in the world, and is expected to attract 10 million tourists.   To be part of such a unique global entertainment and shopping destination  is a tremendous opportunity, and will award instant brand recognition for retailers that become part of Global Village.”

Global Village is set to launch in late 2009, and will feature entertainment, food and shopping from around the world.  Part of DUBAILAND®, Global Village is the first destination among DUBAILAND’s 45 theme parks, and is surrounded by Universal Studios Dubailand™ , SIX FLAGS DUBAILAND® , LEGOLAND DUBAILAND®, DreamWorks DUBAILAND® , MARVEL DUBAILAND®, Tiger Woods Dubai, , and Bawadi, the world’s largest concentration of hotels.  DUBAILAND® will include culture and art centers, science centers and planetariums, sports facilities, shopping and retail, resorts and hotels.

Between the cultural pavilions are garden pavilions that host branded entertainment venues, like HIT Entertainment’s The Little Big Club™, bringing together the characters of Barney the Dinosaur™, Bob the Builder™, Thomas the Tank Engine™ and others in one venue.

Commercial Real Estate Markets in Central & Eastern Europe See Growth - Part 3

This is Part 3 in a three-part series on Central/Eastern European market trends and drivers. The series will cover key markets including Austria, Baltic States, Bulgaria, Czech Republic, Greece, Hungary, Romania, Republic of Kazakhstan, Russian Federation, Turkey and Ukraine.

Romania

The Bucharest office market continues to grow and Class A office stock now exceeds 600,000 SM. The retail sector is reaching a saturation point in terms of new shopping malls and retail parks. Some 21 projects are either in the planning or development stage.

The current stock of industrial space is around 600,000 SM with an additional 310,000 SM to come online by the end of 2008. The investment market remains strong, with interest in projects across all property types.

Russia

The Russia economy, though experiencing a few difficulties with the sub-prime crisis, is predicted to expand by 6.8% in 2008. In Moscow, office and retail rents keep increasing and reflect the still under-supplied market. For the first time in many years, prime office and retail yields slightly increased over the past year, and both office and retail sector investors anticipate an over-supplied market in the next 5-10 years.

Class B office space continues to be driven by domestic demand, which has not been impacted by the financial crisis. All office and retail property types have a very low vacancy rate, typically under 3%. The industrial sector is still largely under-supplied, and should attract more investors and developers over the coming months.

Turkey

The Turkish real estate market experienced strong growth from 2004-2006, and now is about to end a two-year period of stagnation with new growth in 2008. In Istanbul, multinational companies prefer the CBD locations on the European side, while companies operating in the manufacturing, transportation and medical products sectors prefer the new office space on the Asian side.

Retail continues to create investment opportunities. The population is growing and becoming a high consumer society, which is a boon for retailers.

Ukraine

There is a shortage of high-quality office space. Rental rates remain high and will experience upward pressure in the short term, with vacancy rates under 2% in Kiev's business centers (CBD vacancy rates are virtually zero). Due to a shortage of supply, rents in Kiev's 41 shopping centers increased by 75% between 2007 and 2008, with virtually 0% vacancy.

Ukraine's retail growth has led to a considerable increase in demand for modern warehousing. Unsatisfied demand is estimated at between 600,000 SM and 1 million SM. All property types are in demand as investors move into the Ukrainian market. Virtually all fully-leased buildings have been sold to investors and yields have fallen from 15% to around 8%.

Information contained in this blog series comes from the Central/Eastern European Fall 2008 market report, available at www.naiglobal.com.

Global Spotlight - Zurich, Switzerland

Culture, business climate and location draw corporations to Zurich

 

The Greater Zurich Area is the largest commercial region in Switzerland and is driven by the financial and industrial sectors. Renowned for its stability, quality of life and highly-skilled, multi-lingual workforce, Zurich attracts numerous multi-national corporations. Attractive tax packages and the relatively strong economy have ensured a comparatively sustained uptake in the market, resulting in an ever-shrinking available supply. In light of the recent global economic issues, growth is expected to slow and develop into a period of stagnation.

 

Foreign interest remains strong despite the current low lending availability to investors. However, the market is small and prime properties are in short supply. Swiss companies are able to make rapid decisions and generally make up the market’s principal purchasers; owner-occupation remains stable, with the majority of growth in the pharmaceutical, biotechnical and financial sectors. The first signs of the slowdown are in the reduction in volume; yields have barely softened with net yields continuing to transact a sub-4% for prime premises. Rents remain buoyant with persistent demand.

 

Prime office rents within the CBD are located along Bahnhofstrasse and surrounding streets, peak passing rents are around CHF 950/SM/year with rents falling off to about CHF 300 to 380/SM/year for quality, semi-fitted premises in non-core areas. Growth has been consistent, with companies such as Kraft Foods Europe, Google, Vifor (Galencia Group), and Credit Suisse taking occupation of large floor plates between the city and the airport. New developments are planned in Zurich West, including the Prime Tower and its annexes on the Maag Areal and to the north of Zurich.

 

Bahnhofstrasse is the prime retail location and counts major global brands among its tenants. This year has seen a number of newcomers with Apple’s new shop, Loro Piana and Blancpain. Although rents are traditionally around CHF 3’500 to 3’800/SM/year, deals have resulted in rents over 7’500/SM/year. The recent opening of the Sihl City shopping center in proximity to the center of town has added some 41,000 SM of retail space to the market and is almost fully let.

Central/Eastern Europe Sees Strong Growth - Part 2

This is Part 2 in a three-part series on Central/Eastern European market trends and drivers. The series will cover key markets including Austria, Baltic States, Bulgaria, Czech Republic, Greece, Hungary, Romania, Republic of Kazakhstan, Russian Federation, Turkey and Ukraine.

Bulgaria

Bulgaria's office market has remained the most developed commercial property sector, primarily concentrated in Sofia. Total inventory of Class A and B office space is around 710,000 SM, with vacancy rates remaining a stable 5-6%.

By 2010, 33-35 shopping centers are expected to be completed in many Bulgarian cities, with a total gross area of over 1.3 million SM. The demand for industrial and warehouse space is very strong and exceeds supply.

Czech Republic

The Czech government has set a target date of 2012 for joining the European Union, and the country's property markets are slowly growing in anticipation of expanded trade and commerce. Retail demand in Prague remains strong for all property types. The industrial sector supply is increasing significantly with 400,000 SM currently under construction. This new supply will create a new corridor along the R6 highway, including a cargo port and logistic park.

Hungary

For the past 18 months, the Hungarian government has been implementing an austerity and reform program to increase government revenues and cut the state deficit. The stock of the highest quality offices for rent in the capital city is expected to reach 2.25 million SM in 2008.

The retail market is experiencing renewed activity as new shopping centers and malls are expected to come online through 2009 (mainly in the capital). Downtown district refurbishments in Budapest will convert run-down areas and historical buildings into mixed-use office, hotel and residential projects with a total of about 120,000 SM of modern retail space.

There is a relative shortage of prime investment product; transactions are few and not very transparent.

Kazakhstan

GDP growth is dropping and inflation is on the rise. Almaty's office market is still characterized by a significant undersupply of quality office space, with a total stock of modern space at 300,000 SM. The total stock will increase by 40% in 4Q 2008 as Esentai Towers opens.

Due to the increasing demand for newly built and high-quality retail centers, vacancy rates remain low. The country is seeing an influx in foreign retailers. The investment market remains inactive, with local developers looking for foreign investors to keep projects going.

Information contained in this blog series comes from the Central/Eastern European Fall 2008 market report, available at www.naiglobal.com.

NAI Global Forms Venture with Bluestone Real Estate Capital

NAI Bluestone to Assist Lenders, Property Owners in Credit-Starved Property Markets

 

NAI Global, the world’s premier managed network of commercial real estate firms and one of the largest real estate services providers worldwide, announced today the formation of a new venture with real estate investment banking firm Bluestone Real Estate Capital to provide creative financing solutions tailored to today’s challenging financial markets.

 

Bluestone Real Estate Capital is a real estate investment banking and advisory firm that specializes in arranging debt and equity financing for private and institutional property owners, developers and investors in major markets throughout the U.S.  The company completes over $1 billion in transactions annually with a client roster that draws from leading institutional capital providers.

 

NAI Bluestone Real Estate Capital will work with lenders, property owners and investors to arrange debt and equity financing for commercial real estate assets. The NAI Bluestone team will also leverage their extensive experience working with banks and financial institutions to provide asset recovery strategies for non-performing and underperforming real estate assets, including asset evaluation, repositioning and disposition of properties and loans. 

 

NAI Global President & CEO Jeffrey M. Finn and Bluestone Real Estate Capital Chairman Matthew McManus, said NAI and Bluestone joined forces in response to an urgent need for these services as the economic correction and credit crunch that started in the residential sector continues across most commercial property markets.  The market today has become gridlocked with credit-starved property owners in desperate need of financing and lenders overwhelmed by problems in their existing loan portfolios.

 

“The turmoil in today’s capital markets has had a tremendous impact on lenders, who need help working through problems in their commercial real estate mortgage portfolios, and property owners and investors who are having trouble finding the financing they need for existing projects as well as new investments,” said NAI Global’s Finn.  “Bluestone’s capital markets expertise dovetails nicely with our Asset Optimization practice and Accelerated Marketing Program, creating a debt and equity financing, asset disposition, repositioning and loan sale practice that is in high-demand in today’s market.”

 

“Bluestone is focused on providing innovative solutions to lenders who are facing one of the most difficult periods in commercial real estate history,” said Bluestone’s McManus.  “NAI Bluestone combines NAI Global’s local market expertise and global reach with Bluestone’s commercial real estate debt and equity financing capabilities, creating a service offering to meet property owners and financial institutions’ immediate needs.”

 

NAI Bluestone is based in Philadelphia, PA, and works through NAI Global’s managed network, which includes over 5,000 professionals and 325 offices in 55 countries. NAI professionals complete over $45 billion in transactions annually.

Central/Eastern Europe Seeing Strong Growth in Retail Demand, Manufacturing

This is Part 1 in a three-part series on Central/Eastern European market trends and drivers. The series will cover key markets including Austria, Baltic States, Bulgaria, Czech Republic, Greece, Hungary, Romania, Republic of Kazakhstan, Russian Federation, Turkey and Ukraine.

Market Overview

Unlike the situation in west European markets, CEE commercial real estate markets report relatively little effect on their property markets from the sub-prime crisis. CEE markets are under-pinned by generally positive, but weakening GDP growth, a process that will only accelerate as economic activity and financial pressures in western Europe impact demand.

The region continues to benefit from a transfer of manufacturing from the west and this, in turn acts as a driver to the other sectors: logistics/distribution, services, etc. The resulting increased prosperity leads to strong growth in retail demand.

Austria

The improvement in the office rental market that began in 2005 reached a plateau in 2007. Take-up in 2008 is expected to reach 340,000 SM, with a vacancy rate of 5.7% and rents in CBD locations at €24/SM/month.

Retail sales have remained strong despite the current economic issues with prime rents at €2,400/SM/year. Investment demand has weakened and Austrian investors have generally stopped their investment acquisitions.

Baltic States (Latvia, Estonia and Lithuania)

Fueled by domestic demand and advantageous credit, the Baltic States have been one of the fastest growing economies in Europe over the last few years. The office market remains very active with demand currently surpassing supply. New office space is anticipated in 2009 and 2010.

Retail is a strong performer, as several major new shopping centers are scheduled to open between 2008 and 2012. Vacancy rates are low and waiting lists issued for potential tenants. The industrial market is experiencing increasing activity.

Information contained in this blog series comes from the Central/Eastern European Fall 2008 market report, available at www.naiglobal.com.

German Funds are Back in Action

After a couple of years of inactivity, where they registered a net outflow of capital, the large German open-ended property funds are now firmly back, investing in major commercial property assets from Helsinki to Lisbon.

"In 2006 the funds were selling assets," remarked Juergen Troissner, head of research at NAI apollo in Frankfurt. "This allowed them to accumulate capital and has put them in a very strong position now that other buyers are out of the market.  German investors have found themselves in demand, both domestically and internationally."

Net inflows of €6.68 billion in 2007, with more in 2008, have allowed the funds to return to the market.  But their priorities are now to seek real estate outside Germany. The funds sold €8.2 billion worth of German property, acquiring €2.9 billion, whereas they paid €7.5 billion for assets elsewhere in Europe last year.

Funds such as Deka-ImmobilienGlobal, the largest German open-ended real estate fund, have been extremely active so far in 2008.  Deka has acquired three major office and retail properties in Helsinki, including the €50 million, 8,300-square-meter Kluuvikatu 3 building, part of an €800 million spending program that has covered Germany, the UK, France, the Netherlands, Portugal and Poland.  Deka had not been active in the London office market since 2005, but has returned, partly thanks to a 15-20 percent fall in real estate values over the past year.

Six German funds acquired London assets for a total of £565 million in the first quarter of 2008, with Hansa-Invest paying £136 million for One London Wall and CS Euroreal paying £121 million for Plantation Place South.  Another fund, the €6.6 billion KanAm Grund, will only invest outside Germany and acquired four central Moscow office blocks for $900 million earlier this year, along with a shopping center in Riga, Latvia.

The new mood of outward-looking confidence comes amid some mixed messages within the German economy.  GDP growth in 2007 was a relatively healthy 2.6 percent, compared to the barren years of 2001-2005, but is expected to fall to 1.9 percent this year and down even further in 2009.  Yet unemployment is falling, the government has paid off its budget deficit, exports remain strong and, according to the country's Federal Statistics Office, the economy grew at its fastest pace in more than 10 years during the first three months of 2008.  Industrial and logistics transactions inside Germany rose to €1.2 billion in the first six months of 2008, a 20 percent increase on the same period last year.

Away from the verifiable economic statistics, the mood in the German real estate industry is less happy.  A recent 'investment climate' survey showed that industry professionals are pessimistic about the prospects for rental growth or sales price increases. 

Global Spotlight - St. Petersburg, Russia

St. Petersburg earns designation as Europe's fourth largest city with significant investment in business and global trade

St. Petersburg is Russia's second most important economic, scientific and cultural center after Moscow. It's the fourth largest megalopolis of Europe, a major trade gateway, financial and industrial center of Russia specializing in oil and gas trade, shipbuilding yards, aerospace, radio and electronics, mining, software and computers.

The demand for Class A and B offices has been growing significantly over 2008 due to many western companies coming to this market. Rental rates are rising, but remain behind the level seen in Moscow. The Class A market still is structurally under-supplied and many new business center developments are expected over the coming years.

With many new projects in the pipeline, the industrial market is destined to be over-supplied soon for the first time in many years. The liquidity crisis led to many projects being frozen, and will counterbalance this effect over the next months. Vacancy rates around 7-10% are much higher than in Moscow (lower than 2%) and rental rates are declining for the first time in many years.

Demand for high-quality retail space continues to increase due to many international and large Russian retailers moving to the St. Petersburg region. The total inventory of retail space is approximately 35 million SF, (second only to Moscow) and the tendency is to build larger malls (400,000 to 850,000 SF). The retail market in St. Petersburg is attracting an increasing number of foreign investors looking for higher capitalization rates than in Moscow, with similar expected risk.

St. Petersburg remains the second most attractive market for foreign investors after Moscow. Yields generally are 1-1.5% higher than in Moscow for comparable assets, and sometimes lower risks. Office and retail markets still are largely undersupplied, but we expect the market to be saturated within five to 10 years, depending on how the liquidity crisis impacts current and future projects.