If an increase in inked leases becomes the dominant commercial real estate story of 2011, as companies get clarity on their business outlook, a footnote appears to be building momentum in commercial building sales ”“ albeit not a pretty process.
“A majority if not all of the building sales that are going on today are either foreclosed or in the process of being foreclosed,” said Jesse Williams, senior managing director in the Stamford office of Colliers International. “It is more expensive today to build than to (buy).”
That was obviously not the case only four years ago on the eve of the recession, as commercial real estate brokers bemoaned a paucity of new construction and investors continued to snap up buildings at elevated prices.
“There are investor opportunities out there,” said Jesse Weber, a broker in the Stamford office recently opened by NAI Elite. “People are putting chunks of money into those buildings. ”¦ It”™s at the point where it makes sense to invest in commercial real estate.”
A CoStar Group index tracking repeat sale prices of commercial buildings nationally provided evidence of increased sales volume through April, driven by the liquidation of properties bought at the height of the last business cycle between 2005 and 2007. Of indexed properties fitting that description that were sold in April, more than three in four fetched a lower price according to CoStar, versus just 46 percent sold at a loss that had been bought in other time periods.
A sub-index maintained by CoStar suggested commercial buildings in the Northeast have held their value the best since 2008 ”“ particularly retail buildings.
Losses through the sale of properties previously bought at the peak is a necessary step in the market recovery process, CoStar stated in the report, while adding the sale of those properties is weighing on commercial real estate prices in the interim.
Still, in contrast to the housing market nationally where rock-bottom prices have yet to spur any consistent upward trend, the dollar volume of commercial real estate sold was up 81 percent in April and 18 percent by transaction count.
Current Fairfield County buildings listed for sale run the gamut, including the 175,000-square-foot multitenant office building at 535 Connecticut Ave. in Norwalk, which CB Richard Ellis lists as a distressed property with just 37 percent of the building leased (broker Steven Bardsley has not publicly disclosed an asking price); a small loft-style office building at 12 Havermeyer Place in Greenwich represented by RHYS Commercial Real Estate; and a 91,000-square-foot Commerce Park medical office building in Bridgeport, which Cushman & Wakefield broker Al Mirin recently listed at $13.8 million.
Weber said that deals are getting so good that some companies have negotiated with landlords to buy the building they tenant, rather than sign a new lease.
If leasing velocity is increasing in 2011, much of the activity is in renewals rather than moves that were the hallmark of the market at the peak of the last cycle.
“Most of the people we are talking to don”™t really want to move, it”™s too much capital going out,” said Gerard Hallock, executive managing director at Colliers International. “For landlords, it”™s much more expensive to get a new tenant than to retain a tenant.”
Still, there were some new deals, as tracked by Bob Ageloff”™s broker team at Jones Lang LaSalle, including Beiersdorf Inc.”™s lease for 45,000 square feet of space at 45 Danbury Road in Wilton; The Nielsen Co.”™s deal for 35,000 square feet at 2 Trap Falls Road in Shelton; and the Internal Revenue Service taking 21,000 square feet at the iPark complex in Norwalk.
Opportunities are there for those looking to lock in a long-term upgrade to their current quarters, with Weber currently working with clients in Stamford looking to do just that.
“These guys wanted to get into Greenwich two years ago,” Weber said. “A couple of the employees lived in the city, so they wanted a closer train stop. Two years ago they were looking for space under $45, now they are seeing space as low as $28 ”“ not on the Avenue, but right off it.
“There”™s deals to be made,” he added. “You can make a lateral movement ”¦ and be in a better building.”
There’s no question that more and more companies are going to have to grow and adapt to these coming jobs. It sounds like you guys are staying ahead of the game and using the economy to your buying advantage. Dr. J.