December 13, 2002—The National Association of Industrial and Office Properties (NAIOP) has released the results of Vital Signs, a semi-annual survey of the association’s National Forums regarding the state of office and industrial real estate. This is the fourth year NAIOP has conducted the study analyzed the results.
“The general sense of the respondents is that the economy has no momentum, and the real estate business is dragging,” said Doug Herzbrun, Managing Director of CB Richard Ellis Investors in Los Angeles. “Results also show that despite favorable financing conditions, it will be some time before development gets back on track.”
Business Activity
Forty-four percent of respondents feel their business activity is the same as six months ago. The rest are evenly split between their business being better or worse. Two noteworthy exceptions are the Northeast, where nearly half the members think business is worse, and the Midwest, where nearly half sense it is better.
Financing
A lack of financing is perceived to be a very small threat to the health of either the industrial or office markets. Eighty percent of respondents feel borrowing money is easier or the same than six months ago. Last fall, 60 percent thought it was more difficult. And interest rates are expected to stay low.
Rent
Eighty percent of respondents say office rents have dropped over the past six months. Forty percent see a further drop by the next spring, while 55 percent anticipate stabilization. Industrial fares slightly better; although 60 percent of members say rents declined, few see a further decrease and 75 percent anticipate stabilization.
Terrorism Insurance
Nearly 80 percent of respondents are highly or somewhat concerned with the availability/cost of terrorism insurance—a comparable reading to last spring. The greatest concern is evident along the East Coast, and in the South Central/Texas region.
Mold
Contamination from and liability for mold highly concerns 22 percent of respondents, and somewhat concerns another 55 percent. Only terrorism insurance created more anxiety. And the concern is across the country—this is an issue in every region.
Recovery
Only 10 percent of respondents feel real estate development will re-accelerate in their local markets before mid-2003; last Spring 60 percent thought it would pick up by then. The rest are evenly split between a second half 2003 rebound and a 2004 or later recovery. Canadians, Midwesterners, and Californians have a generally more upbeat outlook than members in the Southeast and Florida. Interestingly, developers are no more optimistic than other members.
For complete study results, including information on Regional Growth, Build-to-Suits, Real Estate Investment Trusts, Investments vs. Development, Building Security and Development Profits, as well as graphics and a PowerPoint presentation, visit NAIOP.
