Steven Wiltshire of Marcus & Millichap Capital Corporation gave us this great information:

This is an interesting article published by IREM that is quite consistent with my local and regional take on the market.

Vacancy rates continue to rise in most commercial sectors and are not expected to level out in most markets until the end of this year or early 2011, according to the National Association of Realtors^®.

Lawrence Yun, NAR chief economist, said there is one bright spot in commercial real estate. ”The multifamily sector can expect increased demand as the economy creates jobs and new households are formed, likely in the second half of this year,” he said. ”However, the office, warehouse and retail sectors continue to experience the delayed effects of the recession. These sectors should see gradual improvement after jobs pick up and create additional demand for space, meaning a broader improvement in commercial real estate is likely in 2011.”

The Society of Industrial and Office Realtors^®, in its SIOR Commercial Real Estate Index, an attitudinal survey of nearly 700 local market experts,(1) confirms that significant fallout from the recession remains, but to a lesser extent.

The SIOR index, measuring 10 variables, increased 2.7 percentage points to 38.2 in the first quarter, compared with a level of 100 that represents a balanced marketplace. This is the second gain following nearly three years of declines; the last time the market was in equilibrium was in the third quarter of 2007.

Development activity remains at a standstill with nine out of 10 respondents saying that it is virtually nonexistent in their markets.

Looking at the overall market, commercial vacancy rates appear to be approaching a plateau, according to NAR’s latest COMMERCIAL REAL ESTATE OUTLOOK.(2) The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by CBRE Econometric Advisors.

Office Market
With an elevated level of sublease space available, vacancy rates in the office sector are projected to increase from 16.9 percent in the first quarter of this year to 17.6 percent in the first quarter of 2011, but should ease later next year.

Annual office rent is likely to fall 2.3 percent this year and decline another 2.1 percent in 2011. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, is forecast to be a negative 24.6 million square feet this year and then a positive 25.5 million in 2011.

Industrial Market
Leasing activity in the industrial sector is below historical levels with higher vacancies, more tenant concessions from landlords and a steeper decline in rental rates. In addition, obsolete structures remain on the market. Industrial vacancy rates are expected to rise from 14.3 percent in the first quarter of 2010 to 14.8 percent in the first quarter of 2011, then decline modestly as the year progresses.

Annual industrial rent will probably drop 6.3 percent this year, and decline another 1.5 percent in 2011. Net absorption of industrial space in 58 markets tracked is seen at a negative 90.0 million square feet this year and a positive 135.6 million in 2011.

Retail Market
Retail vacancy rates should rise modestly from 12.6 percent in the first quarter of this year to 12.8 percent in the first quarter of 2011, and should hold at that level for most of next year.

Average retail rent is projected to decline 1.5 percent in 2010, then edge up by 0.4 percent next year. Net absorption of retail space in 53 tracked markets is likely to be a negative 3.7 million square feet this year and then a positive 8.9 million in 2011.

Multifamily Market
The apartment rental market — multifamily housing — is expected to benefit from an improving economy and job market. Multifamily vacancy rates are forecast to decline from 7.3 percent in the first quarter of this year to 6.3 percent in the first quarter of 2011.

With recent additions to supply, average rent is likely to slip 1.5 percent this year, and then rise 1.2 percent in 2011. Multifamily net absorption should be 145,700 units in 59 tracked metro areas this year, and another 214,500 in 2011.

The COMMERCIAL REAL ESTATE OUTLOOK is published by the NAR Research Division for the commercial community. NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR.

The NAR commercial components include commercial members; commercial committees, subcommittees and forums; commercial real estate boards and structures; and the NAR commercial affiliate organizations — CCIM Institute, Institute of Real Estate Management, Realtors^® Land Institute, Society of Industrial and Office Realtors^®, and Counselors of Real Estate.

Approximately 79,000 NAR and institute affiliate members offer commercial brokerage services.

The National Association of Realtors^®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

(1) The SIOR Commercial Real Estate Index, conducted by SIOR and analyzed by NAR Research, is a diffusion index based on market conditions as viewed by local SIOR experts. For more information contact Richard Hollander, SIOR, at 202/449-8200.

(2) Publication of additional analyses, including metropolitan data, will be posted under Economists’ Commentary in the Research area of Realtor.org in coming weeks.

The next commercial real estate forecast and quarterly market report will be released on August 26.

by Doug Marshall, CCIM

Tom Potiowsky, the State of Oregon Economist, recently presented his most current status of the Oregon economy to the Oregon SW Washington CCIM chapter. His presentation titled, “Oregon Economy: Up the Long, Long, Long Road to Recovery” aptly summarized his findings. The good news: the economy, which bottomed out last fall, is now growing again, although ever so slowly. Shown below are the top 10 facts I gleaned from Mr. Potiowsky’s presentation: 1. As of April 2010 the state’s unemployment rate is 10.6% compared to 9.9% nationally. 2. Job growth (-1.7%) ranks 41st for all states for April 2010 over April 2009 3. Total nonfarm employment dropped -3.0% year-over-year for the 1st quarter of 2010 4. The rate of decline in job losses has slowed from 10,000 a month for the first six months of 2009 to 875 per month for the first four months of 2010. Job losses are anticipated to continue through this quarter with only mild job growth the rest of the year. 5. Oregon exports increased 41% in the 1st quarter of 2010 compared to the same period last year but declined 23% when compared to 2008. 6. Personal income growth has almost stabilized at -0.1% for 4th quarter of 2009 over 4th quarter of 2008. 7. When compared to other states our unemployment rate is significantly better than Nevada and Arizona, about the same as Idaho and California and significantly worse than Utah and Washington. 8. From Oregon’s peak employment (which occurred in March 2008) it is estimated that it will take around 76 months (about 6+ years) to get state employment back to the same level. Only the 1980-82 recession took longer to recover from, that taking about 7 years. 9. U.S. employment is projected to take about 60 months to recover to the level it was prior to the recession. This is predicted to be the longest recovery period of the 10 recessions (by a wide margin) that has occurred since WWII. 10. Oregon’s Index of Leading Indicators is in positive territory for the first time since late 2007. The six-month annualized percent change is 3.3%. Nine of the 11 leading economic indicators are positive. So where we go from here depends on many factors. For example, on the upside other parts of the world could recover more quickly increasing the demand for our exports. On the downside, the potential for a real estate bubble in China or the affect of the Greek crisis on the Euro could adversely impact us and the rest of the world. Who knows? We can focus on the unknowns or those things out of our control or we can roll up our sleeves and focus on those things we can change. This reminds me of an old African proverb: Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a lion wakes up. It knows it must outrun the slowest gazelle or it will starve to death. It doesn’t matter whether you are a lion or a gazelle. When the sun comes up, you better start running. Let’s all run in these difficult times as best we can to see another day!

Rene responds to Ben Bernanke’s announcement about keeping interest rates low and looks into her crystal ball.

Many investors ask us our opinion of the market, when do we feel we will be out of the recession, and what is the right kind of property to buy right now.

First off, if we could predict when we will be out of this recession then we would be sitting on a beach on our own island having waiters bring us fruity drinks with pink umbrellas.  No one can really predict when the recession will end because it is job and employment driven.  Until people go back to work our financial woes nationally will continue.

With that being said, there are some ways to look at real estate to determine what will be the least likely real estate asset to be hurt in this recession.  Here is the Nelsonian Theory:

1. Class B and C Apartments in college towns
2. Modest priced rental houses in strong neighborhoods
3. Small medical office buildings with well established doctors
4. Key: Retain some LIQUIDITY!!!

Retaining liquidity is critical in a tough market like this.  If you have a leaking roof or the HVAC of the property fails having the cash to fix it quickly can make the difference of keeping your tenants happy or having them move out.

Liquidity is also important when you have a vacancy.  It is always painful when you have to dip into your own pocket to cover a mortgage payment if your space is vacant and there is no rent coming in.  Set a goal today of accumulating 1-2 months of operating expenses in a reserve account.

Class B and C Apartments are becoming very attractive to investors.  The tenant mix in these types of properties are hard working blue collar individuals who usually become long time renters.  They work hard and pay their rent on time.  They are looking for a clean, safe place to live and don’t expect granite, stainless steel appliances, etc. They are also not the type of tenant who is renting your place just long enough so they can save up a down payment and then vacate to go and buy a house which is a trend in Class A apartments.

The most popular Class B and C Apartment complexes can usually be found in college towns.  Right now with unemployment high the local universities and colleges are busting at the seams with people wanting to get an education.  College towns are great for apartments because there is a healthy mix of the working sector in addition to the student sector for possible tenants.

Read our next blog about things you can do right now to get yourself in a better financial position to weather the storm.

As reported in Foreclosure Market Trends Report.

A total of 2,824,674 U.S. properties in received a foreclosure filing in 2009, a 21 percent increase in total properties from 2008 and a 120 percent increase in total properties from 2007, according to the RealtyTrac Year-End 2009 U.S. Foreclosure Market Report. The report also shows that 2.21 percent of all U.S. housing units (one in 45) received at least one foreclosure filing during the year, up from 1.84 percent in 2008, 1.03 percent in 2007 and 0.58 percent in 2006. Foreclosure filings were reported on 349,519 U.S. properties in December and foreclosure activity in the fourth quarter decreased 7 percent from the third quarter. Read the entire report.

Click to enlarge

2009 will go down as one of the toughest years for the Portland economy since the early 1980’s, with only the Great Depression causing noticeably more pain. While we all know how tough the second half of 2008 was, there was little to prepare us for the turbulent waters and gale forces winds which impacted the Portland economy and commercial real estate in 2009. So just what happened here in 2009?

Portland Economy: The big surprise of 2009 was just how weak the Portland economy was. Over the twelve months ending in October 2009, we have lost 53,200 wage and salary jobs, or over 5% our employment base. In addition, our unemployment rate rose from 6.8% in October 2008 to 11.6% in October 2009.

Read the full 2010 Winter Newsletter.

I recently read this article in USA Today (10/15/09) that gave the top indicators of economic heath.
These are the indicators according to HSBC Consumer Survey of 1,000 households.

• 42% stated: People around me get jobs again
• 39% stated: Unemployment rate declines
• 22% stated: Home sales improve
• 16% stated: Retail sales increase
• 15% stated: Fewer empty store fronts.

Nelsonian Theory would state:

• Watch new job growth – there must be jobs to generate income that will allow and support consumer spending.
• Consumer spending leads to the spending cycle that generates consumer confidence and a return to the free flow of money. Nothing works unless people have money and borrowing capacity.
• Watch for the stable return of the commercial mortgage market – The “continual bad news” being emitted by the commercial lending sources is by itself squelching the desire to borrow on a long term basis. If there is a fear of availability of financing, there will be an absolute slow down in construction.
• Frankly, that can be an advantage, if you personally would purchase existing construction. The increase in user demand (tenants) will force a reduction in vacancy factor in the existing supply (apartment units to be rented to the folks that need safe and clean shelter).
• It is a great time to corner good quality property – The competition is sitting on their hands, and sellers will consider reasonable offers.

 Bob Nelson, CCIM

(541) 485-8100  bob@1031gur.com

Pacwest Real Estate Investments, LLC

As everyone knows, the commercial real estate capital markets have been in turmoil since June of 2007, when the single family subprime lending debacle first appeared on the scene. Since that time, the lending market has slowly, but ever so consistently continued to deteriorate.

I am frequently asked “When will the lenders start lending again?”. While there is no silver bullet listed below are several things that need to happen.

1. The overall economy needs to improve
2. Commercial real estate fundamentals need to stabilize
3. Foreclosures need to occur so banks can cleanse their balance sheets of non-performing assets
4. Weaker banks need to fail
5. Lenders need to extend, amend and pretend
6. Inflations needs to happen
7. A new version of the Commercial Mortgage Backed Securities (CMBS) needs to be created

All of the solutions will take time to favorably impact the market. Even if all seven factors were to begin moving in the right direction today, it would take months before the lending environment would fully feel this positive influence.

To find out more details or discuss these points feel free to give me a call me Bob Nelson at (541) 485-8100. I have a complete report that I can share with you.

This article is reproduced with the permission of Doug Marshall of Marshall Commercial Funding.

The following “Investment Trends Quarterly Reports” are unquestionably the best and most current information concerning investment and value trends in the commercial real estate industry.

The CCIM Institute makes this information available for CCIM’s and CCIM Candidates only for their exclusive professional use. By permission of the CCIM Institute the following ITQ Reports are available for your viewing.

ITQ Report 3rd Quater 2009 – Portland Oregon

ITQ Report 3rd Quarter 2009 – Seattle Washington

ITQ Report 3rd Quarter 2009 – Western Region