Distress? What Distress? 5 Office Markets Attract Top Dollar for Prime Assets – CoStar Group.

The same property and market fundamentals are not as apparent outside of the five markets examined — not even for such major markets as Chicago.

“Chicago has been experiencing declining office rental rates in constant dollar terms since 2001 and declining occupancy rates,” said McKim N. Barnes, senior vice president-research and analysis at Draper and Kramer Inc. in Chicago. “And the job counts in Where Workers Work (put out by the Illinois Dept. of Employment Security) indicate no growth in the Chicago region and in Chicago’s downtown. Without job growth, how will there be rent increases in real terms?”

Jones of Far East National Bank, said he has “noticed no spillover effect to B- and C-level properties in sluggish markets. There, the mindset of buyers/investors is the opposite – no one seems to want to pay the asking price for an asset which is less than the price in a less-than-prime location. They may bid the asking price, but then they’ll find all sorts of ways to negotiate the price down – problems with the property, potential liability issues, etc.”

Anthony Homer, a commercial associate with LWR Commercial Realty in Lakewood Ranch, FL, said there is another reason the activity has not trickled down so far.

“Most of the Class A office properties in smaller markets, like ours, are owned by privately held firms or single owners. There has been a trend among national and local tenants of moving ‘up the food chain’, into the most desirable office properties,” Homer said. “Couple these factors with a lack of comparable investment alternatives and there is little motivation for these landlords to sell performing assets. That’s what we’re seeing in our market and I think the same factors apply in many of the secondary and tertiary markets in Florida.”

CoStar’s Hession says that interestingly enough, the trend is reversed in the struggling Southern markets, with higher-vacancy properties changing hands.

“High-vacancy Southern markets including such markets as Dallas-Fort Worth, Houston, Atlanta, Phoenix, Tampa, and South Florida have yet to see an uptick in investment, and about one in four of this year’s deals in those markets has been distressed,” Hession said. “Properties that last sold during the peak are holding up a bit better, although vacancies are still extremely high compared to the favored [markets]. This suggests that sellers are throwing in the towel and dumping their poorly performing assets in these markets. The buyers of these assets, however, appear to be using their lower basis to buy occupancy. The vacancy rate in these recently purchased assets has been declining since the beginning of 2009, even as properties sold from 2006-07 continue to see occupancies erode.”

“As investors get frustrated with the fierce competition for core assets in the primary markets, they will begin to move out along the risk spectrum, either acquiring higher-occupancy properties in secondary markets or more value-add deals in primary markets,” Hession said. “When the capital train approaches those stops, pricing and competition will rise accordingly, particularly as job growth, leasing, and absorption become more apparent and vacancies begin to crest.”

Newcomer Award

Winning FAR’s Newcomer Award for 2009 is Anthony Homer, a member of the Sarasota Association of Realtors. The Newcomer Award recognizes someone who entered the Realtor profession within the past three years, and, during that time, made notable contributions to the local and state associations, as well as to his or her community. This is the second year in a row that a Realtor from the Sarasota Association has received FAR’s Newcomer Award.

Homer is a charter member of Sarasota Young Realtors, a group formed in 2007 to involve younger Realtors in the organization. He was vice chair for the group in its inaugural year and chairman in 2008. Under his leadership, the group developed an economic summit that brought together panelists from various segments of the real estate industry to discuss the state of the local market. Homer served as the moderator for that panel; the event was so popular it was repeated this year.

While Homer focuses on commercial real estate, he grew up in Hong Kong, which sparked a strong interest in international real estate and partnerships. He served on the local association’s International Steering Council, participated in the International Real Estate Congress and attended most of its monthly international education programs. He also is a member of the Sarasota association’s Commercial Investment Division and serves on its Board of Directors. Homer graduated from the local association’s inaugural Emerging Leaders Program, and will be a member of the association’s Board of Directors in 2010.

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