Savannah Commercial Real Estate Activity Picks Up

Over the last 6 months, though anecdotal, my fellow brokers, appraisers and other service providers have seen commercial real estate activity pick up in the Savannah area. While not booming by any means, there has been a recognizable improvement.


LEASING LEADS

The majority of actual deals being executed are leases, led by the industrial sector. Office and retail leasing has seen an uptick of smaller tenants and start ups, neither of which absorb much space. National retailers are starting to look again, but are only interested in prime locations like Abercorn or Pooler Parkway, not willing to take any risk.

The leading industrial real estate owner in our area, Duke Realty, recently signed a few distribution warehouse deals in the 100,000 square foot range. Other industrial developers also report an increase in tenant inquiries.

Buyers are beginning to look again. Sales however, continue to be soft in all product types. Some activity is driven by users who believe it’s time to begin planning for future expansion. Investors, believing the next 12 to 18 months are critical to capitalize on depressed values, are also kicking tires. With several years of industrial space to absorb, our firm has toured more national developers recently. Their target, properties that are underwater or have low occupancy with hopes of acquiring and repositioning them as the economy recovers.
Part 2. LAND LAGS... to follow...
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Rex Benton is Savannah Commercial Real Estate agent with NAI Savannah, the commercial division of Mopper-Stapen, Realtors and is a contributing columnist for "BiS-Business In Savannah" weekly business publication and is an active blogger: www.savannahcommercialrealestate.blogspot.com www.naisavannah.com 912-358-5600 Office Space, Retail Space, Industrial Space, Investment Real Estate

Savannah Commercial Real Estate: 2010 Review & 2011 Outlook

Time heals all wounds, but how much time is the big question. The bruises of the last few years are still there but, some signs of a turnaround are visible. Here is both a national & local look at 2010 and an outlook for 2011:
Office: National vacancy rates hit a 17 year high, but the 4th quarter was the first time in 3 years more space was leased than vacated. Locally, our office market continues to be soft and like the nation, vacancy rates will remain relatively flat. Limited office leasing produced some moves but few net-new users of any significance. GSA build-to-suits drove development, including Savannah’s first modern-day, Class-A building in the central business district. Slated to open in 2012, 70,000 SF will be constructed facing Ellis Square and house the U.S. Attorney’s office on four of its six floors.

RETAIL: US holiday sales were the best in 4 years. An increase in consumer buying power should lead to modest sales growth in 2011 with discount & grocery retailers benefiting the most. Oglethorpe Mall, nearly fully leased, reported 2010 store sales up slightly compared to a 3-4% decline in 2009. Broughton Street saw mixed results: some store sales were up over last year, but several closings still indicate there is work to be done to invigorate the corridor. Steady tourism improvements also helped increases in tax receipts and hotel occupancies.



photo courtesy of GPA



Industrial: Vacancy rates peaked nationally around 14.1% & should finish 2011 around 13.1%. That’s far better than the near 20% vacancy rate in the Savannah area. Most large deals, including Coastal Logistics Group’s build-to-suit 320,000SF building and JLA Home’s 689,000SF warehouse purchase, were in some way related to the port. No other speculative big-box development is expected with 12-18 months or more of supply. Several smaller user-warehouses traded hands with an abundance of smaller 1500-5000sf lease spaces sitting vacant.

Multi-Family: Due to a slow economy and financing challenges in the single family housing market, the sector that showed real progress is 2010 was multi-family. US vacancy fell to a 2 year low of 6.6 % and rents rose .5%. The sector does lead in foreclosures due to most loans being underwritten at the height of the market. Locally, occupancy was steady if not grew with limited development activity in the Pooler area. Our multi-family developer clients are pursuing projects so, expect more development next year.

Investment: The target for most investment, top-tier markets have seen average asking prices increase. As of 3rd quarter 2010, Moody’s reported apartments led with a 16% increase from the year prior. Office increased 4.4% while Retail and Industrial fell 12% & 4.4% respectively. Look for continued oversees investment as the US is by far the number one choice of foreign real estate investors. Don’t expect that demand to translate into activity in our market except for very few institutional grade properties.

What to expect: Until we start seeing repeated months of 300,000 new jobs a month nationally & strong improvements in the consumer confidence index, the economy has long way to get back to “normal.” Savannah’s infrastructure and relatively low cost of living is ready and able to support all those retirees that want to move here but can’t sell their homes. The commercial market should make some modest strides in 2011 thanks to the port and manufacturing announcements, but it will be slow and steady recovery into 2012.

NAI Savannah Sponsors Economic Webinar:

On January 19th, , NAI Global’s Chief Economist and Wharton School of Business professor, Dr. Peter Linneman, gave his quarterly Global Economic Outlook related to commercial real estate. To get a link to replay the webinar, send an email to: outlook@naisavannah.com.

Rex Benton is a Savannah Commercial Real Estate agent with NAI Savannah, the commercial division of Mopper-Stapen, Realtors and is a contributing columnist for “BiS-Business In Savannah” weekly business publication and is an active CRE blogger. http://www.naisavannah.com/  912-358-5600 Office Space, Retail Space, Industrial Space, Investment Real Estate

Savannah Commercial Real Estate 2009 & 2010

BLOGGER'S NOTE: This was originally published in my monthly column in BiS-Business In Savannah on January 10, 2010.  Look for my column every 3rd Wednesday in Savannah's only weekly business paper.
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In 2009, most involved in commercial (and residential) real estate hung on hoping “in another 6 months” things would start improving.  Below is a ‘technical’ chart outlining what happened:

Vacancies: Up

Sales/Leasing: Down

Values/Rental Rates: Way down

Lending: Non-existent (relatively)

Decision Makers: Frozen/Deer in head lights

Owners/Developers and Service Providers: Ramen noodles and prayer

Tightened lending guidelines, uncertain political consequences and less consumer spending made it a tough year in commercial real estate:

Retail:

Nationally, holiday retail sales were up 1.8 percent, beating the 1 percent prediction of the International Council of Shopping Centers.

Oglethorpe Mall general manager Phillip McConnell said Christmas traffic was as strong as ever but, based on the number of bags people were carrying, they bought less.  In 2010, the council of shopping centers projects a 3-3.5 percent holiday sales increase, the best since 2006 when sales grew 4.8 percent.

McConnell believes 2009 mall store sales will be off only 3-4 percent from last year.  Broughton Street, Southside and the Westside saw a fair share of closures and openings.

I continue to consult national and local retailers that want to be in Savannah, but fewer are expanding or are looking at 2011.

Hotel/tourism:

One positive – hotel occupancy should finish the year down around 4.5 percent from 2008.  How’s that a positive?  New hotels increased the number of rooms available by 5.1 percent. Savannah was the only city in the region with an increase in demand (.5 percent).

According to Joseph Marinelli, president of Savannah Convention and Visitors Bureau: “Value is king...” Local hoteliers reduced rates 9.1 percent.

Charleston did not fare as well. They had a drop of 5.3 percent in occupancy but only a 1 percent increase in new rooms.  Demand decreased 4.5 percent and rates dropped 8.9 percent.

Office and industrial:

In 2009, office development was driven by pre-leases and build-to-suit projects.  Small-business professional parks were challenged. Office leasing in the central business district and Southside was flat. 

Even with a few impressive leases, big-box distribution vacancies (100,000 square feet-plus) remain high due to the speculative port-related development boom.  Land sales have been slow. 

With vacancies in the 20 percent range, expect aggressive deal making and little dirt being turned. 

Investment sales:

Nationally, investment sales volume was low.  Commercial real estate investment returns (based on appreciation or depreciation and income) dropped 15-20 percent, and values dropped 40 percent from 2007 peaks.  Cap Rates have climbed across all sectors.

Here are a couple of local sales: Duke Realty bought a 400,000 square foot distribution building, and a AT&T retail store on Mall Blvd traded at an 8.84 percent cap rate. 

2010: Commercial real estate —“the other shoe” will not drop.

“The other shoe,” a trillion dollars in commercial loans due over the next three years, has received a lot of press.  It won’t be painless, but most of the loans will be worked out.  Though values have dropped, the majority of these loans are for income producing institutional-grade properties.  Locally, there are few in this category so, Savannah has minimal exposure. 

The bigger effect on local values will be led more by the overall economy, distressed properties, and banks that over-played their commercial lending.  My advice to well-heeled investors and business owners (that want to own or lease): economists believe the recession is over, construction costs are down - start looking for opportunities.

Money to borrow is available and vacancies will level off, but neither will drastically correct.  Dr. Albert Niemi, former dean of Terry School of business at UGA, expects Georgia to recover slower than other states through 2011 but to be one of the nation’s fastest-growing states afterward for the next 20 years.    The port, tourism and retiree draw will allow Savannah to play a very active role.

6 Local signs of the national recovery:

1. Gulfstream Aerospace Savannah increases revenues, decreases furloughs.

2. Something goes vertical at Savannah River Landing or President’s Square.

3. Housing starts pick back up; downtown condo supplies reduce.

4. SEDA announces another Megasite user.

5. GPA regains its year-over-year volume growth.

5.5 A few “big-box” warehouse leases are signed. 

6. Ramen noodle sales plummet.



Rex Benton is Savannah Commercial Real Estate agent with Mopper-Stapen, Realtors and contributing columnist for BiS-Business In Savannah weekly business publication.www.mopper-stapen.com  912.238.0874 Office Retail Industrial  Investment Real Estate