Weekly Market Insight Update

Real Disposable Personal Income & Personal Consumption Expenditures; Monthly Percent Change, Seasonally Adjusted

Personal income and consumer spending growth were weak in April, underscoring a big reason for the economy's recent soft patch. Real disposable personal income (income less taxes, adjusted for inflation) was flat for a second month in a row while real personal consumption expenditures grew just 0.1 percent. Sluggish wage growth plus rising energy and food prices have restrained real income growth this year, which has kept spending growth mired at a modest 0.1 percent in four of the past five months. Without stronger income growth, consumer spending, which accounts for 70 percent of GDP, is unlikely to accelerate enough to lead the economy onto higher ground. The plodding rate of spending growth is having a chilling effect on leasing demand for commercial real estate, particularly shopping centers. But there is some cause for guarded optimism. In a separate report last week, the Bureau of Economic Analysis said corporate profits reached an all-time high in the first quarter of this year, confirming that businesses have the cash to prolong the recent, improved pace of hiring. Stronger job creation, if it can be sustained, will boost wages, personal income and, eventually, retail sales as households get more money to spend. 

Robert Bach

Senior Vice President, Chief Economist

Grubb & Ellis

Robert Bach, Senior Vice President, Chief Economist, has 30 years of professional experience in real estate market research, consulting and city planning.

Good News Friday

Bringing It All Together

Some analysts are concerned that the U.S. economy will weaken over the next few quarters as a result of high energy prices, further erosion of the housing market and slower growth overseas. But the economy is seeing an unusual combination of indicators that benefit commercial real estate. Consider the following:

•             Job growth has picked up, averaging a respectable 233,000 per month from February through April – 253,000 in the private sector. This will boost leasing activity.

•             While job growth has ramped up, interest rates have moved in the opposite direction, a rare combination that has caught some high-profile bond investors off guard. The yield on the 10-year Treasury note dropped to 3.07 percent yesterday, its lowest level in more than five months and a decline of about 50 basis points in the last six weeks. This move, if sustained, could put downward pressure on cap rates and mortgage rates, boosting property values.

•             Corporate profits reached a new high as reported yesterday by the Bureau of Economic Analysis – more evidence that businesses have the capacity to hire and invest.

•             Inflation remains low, particularly when energy prices are stripped out, but it could become a problem down the road; look no further than the weak dollar, high gold prices and the worrisome national debt. As inflation rises, replacement costs for existing properties also rise, as do lease payments from the escalation clauses built into most leases. The reputation of commercial real estate as an inflation hedge is likely one factor behind its attraction for investors.

•             Banks have begun loosening standards for commercial real estate lending according to the Federal Reserve, and CMBS issuance is expected to hit $40 to $50 billion by year-end compared with $12 billion last year and $3 billion in 2009. Although many lenders are struggling with distressed loans, others see opportunity in this industry.

•             Indeed, investment activity is up. The dollar volume of sales through the first four months of this year is 87 percent above the same period in 2010 according to Real Capital Analytics.

•             Stock market investors see it the same way. The Dow Jones Equity All REIT Index is up 7.8 percent year-to-date compared with the 5.4 percent gain posted by the S&P 500.

Have a great Memorial Day weekend.

Best regards,

Bob

Robert Bach

SVP, Chief Economist

Grubb & Ellis

Lease Rate & Sale Price Reduced

The lease rate and sale price has been reduced on 4803 E. 5th Street. 

Check out this great midtown garden office project:

http://www.icontact-archive.com/ZFH3-wKlPPe3Pch39WJeUDCFQeGdUvoZ

Good News Friday

The Contrarian

At a time when analysts have been downgrading their outlooks due to high oil prices and global turmoil, Mark Zandi, chief economist at Moody’s Analytics, says that growth is about to accelerate and the unemployment rate could return to equilibrium by 2014. In his latest U.S. Macro Outlook, Zandi notes that businesses are profitable, household debt burdens are falling fast and bank lending is on the upswing. The number of consumer loans including first mortgages that are between 30 and 90 days delinquent has plunged from 22 million in early 2009 to less than 14 million, the lowest level since the late 1990s. This is lifting a weight from consumer spending, which accounts for 70 percent of GDP. The main obstacle to growth is rising federal government debt, but Zandi believes that policy makers will find a way to cut $4 trillion from the deficit over the next decade, which will reduce the deficit-to-GDP ratio to a sustainable 2 percent. In short, Zandi is suggesting that private sector growth is about to pick up enough to compensate for less spending by the public sector.

There are downside risks, of course. Energy prices remain elevated, the housing market can’t find its footing and small businesses are slow to recover. The financial system could be shaken anew by public debt defaults in the eurozone and in the U.S. if Congress fails to raise the debt ceiling. Then there are concerns overseas: recession in Japan, instability in the Middle East and inflation in China as well as fiscal pressures in the eurozone.

Nevertheless, there is a credible possibility that, after three years of deleveraging, businesses and households have put their financial houses in order, and the government may be able to follow suit, which will set the stage for a stronger phase of the recovery.

Have a great weekend.

Best regards,

Bob

Robert Bach

SVP, Chief Economist

Grubb & Ellis

Industrial Insight Update

Expect Cap Rate Spreads to Narrow

Two years ago, the real estate investment market was completely shut down. Nobody expected to see pre-recessionary cap rates again for many years. Over the next year, capital started to flow into the sector, hoping to capitalize on the market’s distress. However, the anticipated level of distress never materialized and investors needed to adjust their return expectations. As financing became available, underwriting standards loosened, and interest rates came down, more capital flowed into the real estate sector. The fundamentals side of the market, however, has been moving considerably slower, focusing investors and lenders on Class A product in Class A locations. The accompanying chart segments markets into three tiers: Tier 1 consists of the nation’s top five investment markets, Los Angeles, Chicago, New Jersey, Atlanta and Dallas; Tier 2 includes the next 11, mostly primary markets, such as Houston, Miami and Seattle; Tier 3 covers 15 secondary markets, such as Denver, Minneapolis and Ohio. While cap rates in Tier 1 markets are already back to their pre-recessionary levels, Tier 2 markets still have about 50 basis points to decline, and Tier 3 markets remain 100 to 150 basis points above their peaks.

The two primary drivers of this aggressive decline in cap rates are the low cost of capital and rent growth expectations. Today, a private REIT that is paying a 6.5-percent dividend yield can offer sub 6-percent cap rates and still cover its cost of capital. Stronger rent growth that will follow the unprecedented declines of the last two years can elevate 6-percent cap rates to double-digit unleveraged IRRs. However, cap rates in Tier 1 markets are approaching the floor and the increasing spread over Tier 2 and 3 markets is becoming very attractive. Expect this spread to narrow by the end of 2011.  Source: RCA, Grubb & Ellis

NEW LISTING

Tucson - Hotel Site - Interstate 10 & Tangerine:

http://www.icontact-archive.com/ZFH3-wKlPPe3Pch39WJeUDbaqDn3ndgZ

NEW LISTING

Office space available for lease in "business" friendly Marana! 

Limited space left on first floor – 2^nd floor fully leased.   

http://www.icontact-archive.com/ZFH3-wKlPPe3Pch39WJeUMZ6OyRcmQRG

Supply & Demand For Commercial RE Loan

Banks are slowly ramping up their commercial real estate lending according to the Federal Reserve’s quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices. In the recently released April survey, 5.5 percent of respondents said their banks eased standards for CRE loans in the prior three months, the first such loosening of bank credit since the fourth quarter of 2005. Nearly 35 percent reported stronger demand for CRE loans from creditworthy borrowers, the largest quarterly jump in 13 years. Banks aren’t out of the woods yet, however. The outstanding volume of bank CRE loans, at levels last seen in late 2006, continues to fall as the increase in REO properties outpaces the issuance of new loans. The FDIC reports that 40 banks have failed year-to-date compared with 72 through the first five months of 2010. Most of these are smaller community banks, and many were laid low by imprudent commercial real estate lending during the bubble years. Nearly 40 percent of all loans at small domestic banks are in commercial real estate versus just 14 percent at large domestic banks according to an analysis of Federal Reserve data. Overall, capital availability is increasing for commercial real estate across most sources of debt and equity. Although prices have moved higher for core assets in primary, supply-constrained markets, pricing for slightly riskier assets (older, more vacant space, secondary location, etc.) remains low, tempting investors and lenders with visions of buying low now and selling high down the road when the market fully recovers. 

Source: Robert Bach Senior Vice President, Chief Economist  - Grubb & Ellis

NEW LISTING

47.2 Acres For Sale at Tangerine & I-10

Industrial Distribution Site Logistics Center

http://www.icontact-archive.com/ZFH3-wKlPPe3Pch39WJeUHDkgG2W0W6E

Critical mass in bio-tech will drive ‘big pharma’ search for commercial real estate - Inside Tucson Business: Construction / Real Estate

Critical mass in bio-tech will drive ‘big pharma’ search for commercial real estate - Inside Tucson Business: Construction / Real Estate:

 "When Bob Davis talks about opportunities in commercial real estate, he's quick with a quip that gets his point across. His straight talk mixes…"

The Comeback Kids

May 13, 2011

About two-thirds of the first-quarter earnings season is in the books, and it has been another good one. For S&P 500 companies reporting so far, income growth surged 21 percent from a year ago while revenue growth clocked a solid 9 percent gain, a sign that demand is expanding across most sectors of the economy. In my mind, two companies stand out, not because they led the pack but because they are comeback stories.

•             General Motors posted earnings in 2010 that were its highest in more than a decade, and last week the company reported first-quarter profit that more than tripled from a year ago to $3.15 billion while revenue surged 15 percent to $36.2 billion. Excluding $1.5 billion of special items – primarily the sale of its interests in Delphi Automotive and Ally Financial – the company’s earnings were $0.95 per share, which beat consensus estimates of $0.93. GM’s performance was fueled by strong demand for new, fuel-efficient vehicles such as the Chevrolet Cruze. Earlier this week, GM announced it will invest $2 billion in 17 factories across eight states and add 4,000 workers by 2014. The U.S. Treasury plans to further reduce its stake in GM this summer and reportedly wants to offload its entire stake by year end. GM has become an important driver of the manufacturing renaissance in the Midwest.

•             Macy's, like GM, more than tripled its first quarter earnings versus last year. Earnings per share of $0.30 handily beat the consensus of $0.18 and last year’s performance of $0.09 as the company’s initiatives and merchandise offerings finally paid off. Same-store sales in the quarter rose 5 percent, and Internet sales increased 38 percent. Management increased the dividend, and share repurchases could begin next year. Macy’s performance is good news for the many malls that it anchors, which are seeing increased foot traffic. For years, the story has been retailers at the upper and lower ends of the price-point spectrum capturing market share from the shrinking middle. While that trend is still in place, Macy’s is showing that savvy management, aided by a modest rebound in consumer spending, can establish a beachhead against further erosion and perhaps recapture some of that market share.

The revitalization of these iconic brands remains a work in progress, but they have come a long way from 18 or 24 months ago when the future looked a lot bleaker.

Have a great weekend.

Best regards,

Bob

Robert Bach

SVP, Chief Economist

Grubb & Ellis

Sale Price Reduced - 1881 N. Kolb Road

The sale price on the office space located at 1881 N. Kolb Road has been reduced:

http://www.icontact-archive.com/ZFH3-wKlPPe3Pch39WJeUBiAP_tJwcW9

Industrial Insight • Watch the Spread Between Vacant & Available Square Feet

May 11,2011 

Most commercial real estate market commentators focus on vacancy and availability rates while neglecting what may provide better insight into market dynamics – the spread between them. Instinct suggests that the market’s availability should always exceed its vacancy. After all, landlords start to market space at least six months in advance of vacancy, and this lead-time doubles in a weak market. The accompanying graph illustrates the change in the spread over time, which ranged from 100 to 150 million square feet before the recession to as high as 400 million square feet at the market’s trough. During the recession, some tenants went out of business, some consolidated their operations and some were reluctant to renew their leases until they had expired, or even later, as landlords were willing to sign month-to-month leases to keep their buildings occupied. In each of these scenarios, landlords started to market the space for lease, impacting the availability rate while vacancy remained unchanged until the tenant moved out. During the recovery, the process should reverse as new leasing activity increases and existing tenants renew earlier. In fact, in an overheated market, such as San Francisco in 2000, it is possible for a market to have fewer available square feet than vacant as tenants lease space before it becomes vacant and the landlord is able to complete improvement work required by the new tenant. Over the last year, the national industrial market has experienced nearly 80 million square feet of positive absorption and an 80-basis-point decline in the vacancy rate. The available/vacant spread has remained unchanged, however, making it an important metric to watch for the remainder of 2011 – a stubbornly high level could signal that the market’s recovery is stalling.   Source: Grubb & Ellis

New Industrial Listing - 3791 N. Highway Drive

http://www.icontact-archive.com/ZFH3-wKlPPe3Pch39WJeUNeTtSLGlzmH

Weekly Market Insight • Interest Rates • 5/9/11

Long-term interest rates have been moving lower, surprising analysts who expected interest rates and inflation to rise as the economy gains momentum. Falling interest rates also are surprising many who thought the pending conclusion of the Federal Reserve's $600 billion bond-buying program called QE2, i.e. the second round of quantitative easing, would cause prices to fall and interest rates to rise as the 500-pound gorilla prepares to leave the market. The 10-year Treasury hit 3.18 percent on Thursday, its lowest yield since December 7th. Bond traders appear to be reacting to a recent string of disappointing economic indicators – a trend that was called into question by Friday’s report from the Bureau of Labor Statistics showing a solid 244,000 net new payroll jobs created last month. The recent decline in the price of oil and other commodities also is related to concern over weakening economic growth in the U.S. and globally. Crude oil futures trading on the New York Mercantile Exchange ended Friday at $97.18 per barrel, capping the biggest weekly slide in dollar terms since 1983 when oil trading began on the NYMEX. Lower interest rates and stronger job growth can be viewed as the best of all possible worlds for commercial real estate. Lower yields on 10-year Treasuries will keep the pressure off of cap rates and mortgage rates, while stronger job growth will help fill properties with newly hired workers.

Robert Bach

Senior Vice President, Chief Economist

Robert Bach, Senior Vice President, Chief Economist, has 30 years of professional experience in real estate market research, consulting and city planning. His commentary on the real estate markets is provided here on a weekly basis.

 

Grubb & Ellis Industrial Insight

Last month, I shared the preliminary findings of Grubb & Ellis’ newest research report, the Industrial Broker Sentiment Survey, which provides in-depth analysis of more than 100 surveys completed by industrial brokerage teams in over 40 markets nationally.

The final report, now available in the Knowledge Center on our web site, addresses their thoughts about market velocity, rental rates, lease terms and concessions, active industries and investment activity, providing valuable qualitative information not captured in statistical reports.

Decisions are best made when market statistics are supplemented with qualitative insight. With this report, it is our intent to supplement what the statistics are telling us with what the actual market participants are experiencing.

Rene Circ

National Director of Research, Industrial

Download a full copy of the 1st Qtr Grubb & Ellis Indusrial Broker Sentiment Survey:

https://grubb-ellis-tucson.sharefile.com/?cmd=d&id=f249d327cc1e4b9d

Tucson Office Properties Available for Sale or Lease

Click on link below to download May's Monthly Mailer of office properties available for sale or lease in Tucson:

https://grubb-ellis-tucson.sharefile.com/?cmd=d&id=177de3b03421463a

Industrial properties are seeing renewed interest from out-of-state businesses

Real estate group: Retail vacancies up; churches making notable buys

Walmart may join Costco near Kino, I-10

Dale Quinn Arizona Daily Star | Posted: Friday, May 6, 2011 12:00 am
Construction of a new Walmart near South Kino Parkway and Interstate 10 could begin by the end of the year.

The discount retailer would join Costco Wholesale as an anchor tenant at the shopping center called Tucson Marketplace at the Bridges. The shopping center makes up the retail component of a mixed-use project that includes the University of Arizona's planned Bioscience Park.

Bruce Wright, the UA's associate vice president of research parks, told a group of real estate professionals at a forecast event Thursday that city officials are currently reviewing plans for the Walmart.

The retail center, developed by Retail West Properties LLC and Eastbourne Investments, is part of a larger project called The Bridges planned to include homes built by KB Home and Lennar, along with the UA bio park, Wright said.

Wright didn't mention any specific bioscience or technology companies that have expressed interest in locating at the park.

"We are in active conversations with a number of prospective tenants," he said. "Most of them wanted to see the infrastructure in place before they entered into serious negotiations with us."

Thursday's quarterly meeting of the Pima County Real Estate Research Council, held at the Tucson Association of Realtors, 2445 N. Tucson Blvd. also included updates on various market sectors:

Retail
Overall vacancies in the first quarter of 2011 were at 8.9 percent, said Craig Finfrock of Commercial Retail Advisors. That's up from about 8 percent two years ago, he said.

Rents have dropped to $14.96 per square foot from $18.62 per square foot back in the second quarter of 2009, Finfrock said. But even that can depend on location.

"Some prime locations have really held up their rates exceptionally well," especially those with storefronts that face major intersections and roads, Finfrock said.

Industrial
Industrial properties are seeing renewed interest from out-of-state businesses, said Ron Zimmerman of Grubb & Ellis.

"Transactions are happening," he said.

Zimmerman said he's again seeing clients from Albuquerque and Los Angeles. But it's still a buyer's market, with many financially distressed, bank-owned properties for sale.

And there's more of that on the horizon. "I do see more foreclosed buildings coming on the market," Zimmerman said.

Land
The land market is incredibly segmented, said Jim Marian of Chapman Lindsey Commercial Real Estate.

A bidding war can emerge for a property on the northwest side, while a property southeast of Tucson will see little activity, Marian said.

Churches have made significant purchases lately, he said. The Church of Jesus Christ of Latter-day Saints recently scooped up property in Green Valley and Sahuarita, for instance.

And the land that is selling is going for much lower prices than it did in previous years, Marian said.

Contact reporter Dale Quinn at dquinn@azstarnet.com or 573-4197.

Source:  http://azstarnet.com/business/local/article_d88e9d0b-0599-5a3b-bb62-520f05b2c154.html

Available Properties for Sale and/or Lease:

The Davis/DiVito/Kong Team Available Properties:


Click to download this month's available properties for sale and/or lease:

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