According to American City Business Journals the commercial real estate markets for office buildings in major metropolitan areas such as New York, Washington and San Francisco have turned the corner – and
South Florida commercial real estate isn’t too far behind.
The industrial markets are recovering.
Retail, while rents are still depressed, dodged a bullet that could have seen more retailers diving into bankruptcy.
And the investment sales activity that started lighting up dreary real estate skies last year will pick up momentum this year.
Those are the sentiments of Cushman & Wakefield President and CEO Glenn Rufrano.
Rufrano, who took the helm of the world’s largest private
commercial real estate services firm last year, made a stop at the firm’s Miami office this week as part of his road trip to Cushman & Wakefield offices worldwide.
I had a chance to talk to him about the state of the commercial real estate market here and abroad.
He was both bullish and practical about where we are in the cycle.
Through the lens of history, Rufrano says the commercial crash of the Great Recession hasn’t been as protracted as the early 1990s downturn, when there was overbuilding, no capital and properties being dumped by the Resolution Trust Corp. for pennies on the dollar.
“The differences this time are dramatic,” he said. “Because of that, I see a lot more transactions happening over the next 24 months.”
He said federal regulators’ leniency and banks’ decision to modify and extend commercial loans, instead of liquidating them, has proven prudent.
It kept them from suffering bigger losses by unloading properties at the market’s lowest point and further depressing values.
As such, commercial values found a floor and, in some asset classes and markets, are already rebounding, he said.
“I hear this phrase ‘extend and pretend’ and I think ‘baloney.’ It was smart,” Rufrano said, referring to the widely used market terminology for the practice of extending and restructuring defaulted or matured loans.
Office leasing activity is also increasing, he said.
Last year, the nation’s major downtown districts saw the first positive office absorption – with 2.2 million more square feet of offices leased than vacated – since 2007, according to Cushman & Wakefield data.
Improved leasing – paired with little new construction – led to a three-tenths of a point dip in the U.S. central business district vacancy rate. The fourth quarter rate was 14.4 percent.
The picture wasn’t quite as bright in downtown Miami, which saw two major towers open last year and a vacancy rate of 20.4 percent.
But give it 24 months and those empty offices will fill Rufrano predicted.
“It is going to take a little more time before it filters down here. The drivers are different,” he said.
But, empty space hasn’t kept Miami’s central business district from having one of the nation’s highest average asking rents, according to Cushman & Wakefield data.
came in eighth, with fourth quarter asking rates at $35.33 a square foot – up 23 cents from the third quarter. It was eclipsed by asking rents of $35.58 a square foot in downtown West Palm Beach.
Midtown Manhattan was the priciest district, with an average asking rate of $62.46 a square foot, data showed.
On pockets for growth, Rufrano says he is seeing one clear trend: “When you look at the health care business, there is tremendous growth in that business. Medical office buildings are a very good sector.”