Beacon Newsroom
Experts advise developers to hang on until 2010
March 11, 2009
The Charlotte ObserverBy Doug Smith
When will it be over? “We think it will end late this year or early 2010,” said Vitner, senior economist at Wachovia, which was acquired last year by Wells Fargo & Co.
Conference panelist Hal Kempson of L.J. Melody even suggested a chant for industry associates at the N.C. Chapter of the Certified Commercial Investment Member's (CCIM) forecast luncheon: “Begin again in 2010,” a takeoff on the mantra of the early 1990s recession: “Stay alive until '95.”
Last year, commercial real estate industry panelists at the luncheon were mindful of negative economic signals, but they felt Charlotte would come out of any downturn quickly.
This year, they were talking about struggling to hang on – possibly for another year to 18 months – until market conditions improve.
Trying to peer into a crystal ball and predict the future at such events is “trial and error at its finest” said moderator and local broker Jim Rogers. “At this time last year we were talking about the global recession threat, interest rate cuts, the credit crunch and lenders exiting the market.”
This year, commercial real estate activity slowed dramatically. Building permits issued in the county plunged in January to the lowest level in six years for the month.
Even so, said Rogers, who works for Flagship Capital Partners, “What I got from the forecast is Charlotte is in a lot better shape than many other cities. Here people are on hold, waiting for this to transition.”
Outlook panelists took turns updating more than 300 attendees on what's happening in the various sectors of real estate.
Here's a sampling:
Retail: “The problem in retail is not the result of oversupply – it's due to the dramatic reduction in consumer spending and confidence,” said Peter B. Pappas, president of Crosland Retail.
Nationwide, he said, the average ratio of retail square feet per capita is 45, according to CoStar Group. In Charlotte it's 30 square feet.
Instead of launching new construction, he said, this is the time for retail developers to get site approvals and do preliminary work to resume when conditions improve.
Office: Investors have never been more fearful, said Anne Vulcano of CB Richard Ellis, even though Charlotte's office vacancy rate is relatively stable at about 13.5 percent.
“We're not overbuilt,” she said, “but it is more vacancy that we are used to.”
Industrial: Leasing, sales and development in the warehouse market hit the brakes in 2008, “but we're still rolling,” said Jon Morris, industrial partner at Beacon Partners. “We still have assets that are performing; we have cash flow.”
He said Beacon is focused on operating its properties and negotiating with tenants to keep them in place. “Like heaven,” he said, “many of us are dying” to make it into 2011.
Multifamily: About 6,000 apartment units are under construction, which possibly could create an oversupply later, said Kelly Dunbar of Wood Partners.
In that case, landlords likely would see revenue decline, but tenants would benefit from lower lease rates as apartment communities compete.
The annual outlook conference was held at Concord's Embassy Suites. Charlotte Mayor Pat McCrory was guest speaker.
