2011 CCIM Forecast Competition Overview

Dr. Mark Dotzour provided an economic overview of Houston’s commercial real estate market .

The 2011 CCIM Forecast Competition kicked off February 25 with an economic overview of Houston’s commercial real estate market by Mark Dotzour, PhD., chief economist and director of research for the Real Estate Center at Texas A&M University in College Station.

Dr. Dotzour noted that local commercial real estate prices increased about 11% during 2010 but were still about 28% below the peak pricing in 2007; prices nationally decreased about 7% during the same time, he said. He reported that a recent survey showed that 45% of the businesses surveyed wanted to hire additional employees, a positive sign for growth in the market. However, he said the area’s shadow inventory – space that is paid for but not used or occupied – and how much is coming back on the market could be a real concern. This space coming back on the market would negatively impact absorption rates and rental rates in all the major asset types, but especially in office due to recent company mergers and downsizing.

Core Real Estate’s Michael Wyatt and Caldwell Companies’ Bill Ginder

Commercial Gateway is a long-time key sponsor of the CCIM Forecast. The annual competition offers future market trend predictions provided in a debate-style competition by local experts in the office, retail, industrial, land and multi-family markets. Dr. Dotzour also served as the moderator between the two competitors of each asset class. Winners of the 2009 forecast competition returned to compete in the 2011 event.

Asset types, competitors and their predictions include:

Office:
CB Richard Ellis’ Sanford Criner and Granite Properties’ Scott Martin predicted positive absorption ranging from 1.25 to 2.5 million square feet, respectively, in 2011, attributing that absorption to a predicted 3% job growth and somewhat stable environment. Both said there would be activity because tenants have to make decisions on their space needs, but the economy and office efficiency are two areas that will affect any true growth in the leasing market. Class A rental rates predicted range from $34 to $37.60 downtown and from $27.50 to $29.50 in the suburban markets. Criner predicted higher occupancy levels and higher rental rates for Class A than Martin, while Martin predicted higher occupancy for Class B in both downtown and suburban office markets. Martin also predicted average sales prices at $230 vs. Criner’s $200 price per square foot. Both agreed on $150 per square foot as the average suburban sales price.

CB Richard Ellis’ Sanford Criner and Granite Properties’ Scott Martin

Industrial:
Core Real Estate’s Michael Wyatt and Caldwell Companies’ Bill Ginder presented similar predictions on absorption, ranging from 5 to 4.5 million square feet, respectively. Occupancy rates remain high for dock-high space, from 94.9% to 95.5%, while service center space should range from 88.7% to 89.2%, according to the two industrial specialists. Lease rates were also similar, ranging from Ginder’s $4.73 to Wyatt’s $4.90 per-square-foot rate for dock-high space, with Ginder noting a larger rate, $8.95 per square foot, for service-center space compared to his competitor’s $8.25 rate.

Retail Property Group’s Brad Sondock and Page Partners’ Ed Page

Retail:
Retail Property Group’s Brad Sondock and Page Partners’ Ed Page differed dramatically on the future of the 2011 retail market, with Page showing a much more positive outlook. Sondock reported a much larger inventory and a negative absorption of 200,000 square feet compared to Page’s smaller market but 2.12 million square feet of positive absorption. Page noted that because Houston is perceived as a strong market with long-term potential, retailers are looking for sites and ready to execute leases. Page also sees a stronger occupancy, 90.6%, compared to Sondock’s 82%. By the same token, Page is predicting higher rental rates for anchored center space greater than 20,000 square but believes average sales per square foot will be lower for properties greater than 25,000 square feet.

Vista Brokerage Services’ Dennis Johnston and NAI Houston’s Joel English

Land:
Vista Brokerage Services’ Dennis Johnston and NAI Houston’s Joel English also predicted a somewhat different outlook regarding single-family starts and lot pricing. Johnston overall stayed on the conservative side, predicting fewer single-family starts based on a smaller number of new developed lots, but was bullish on pricing compared to English. Although few land deals have occurred in the last couple years, Johnston predicts pricing for suburban land between 100 to 200 acres to be $25,000 per acre, compared to English’s forecast of $15,500. Johnston also predicted stronger pricing for both midtown land and retail sites outside Beltway 8.

Apartment:
Apartment Realty Advisors’ David Wylie and Jones Lang LaSalle – Americas’ Greg Austin presented similar forecasts regarding inventory, absorption, occupancy and rental rates with regard to Houston’s multi-family market in 2011. The two apartment experts differed on their sales forecasts, with Austin predicting 57.5% more units sold in 2011 at 50% higher average price per unit than Wylie. Austin also predicted a 22% average higher price per square foot for sales when compared to Wylie.