Regional Vice Presidents Roundtable: The Year in Review How do you anticipate that the real estate needs of the businesses and people in your region will change over the next few years?
Michael Simmons, Region 2: Many small companies in our area are merging or consolidating their branch offices. As a result, office leasing is becoming more difficult, especially for buildings geared to small space users.
Frank Ventura, Region 7: In Texas we are finally moving out of a real estate market that has been very depressed since 1985. As we bounce off the bottom, we have to be certain that we do not drown on the way up. The local financial institutions are still struggling, so there is not enough capital for even sound businesses to develop or expand. This lack of financing is not all bad, in that we are capping our construction, which should give us time to absorb some of the vacancies.
An advantage of the large amounts of vacant space in Dallas is that we have enough contiguous space to attract big corporate moves, such as Exxon, GTE, and J.C. Penney. And these corporations can get this space at a great price. Apartment sales have been strong, as have single-family home sales.
We will probably see a final cleansing of troubled financial institutions in the next 18 months. If stabilization becomes a little stronger, we should see the Texas economy coming back, although it will never be as strong as in the heydays of the early 1980s. Smaller cities will take longer to come back because they do not have the economic base of Dallas or Houston.
The fact of the matter is that there is a tremendous feeling of optimism in Houston and Dallas, which can be seen in all areas of business, including real estate. We have had great press on Texas's rebound over the last six months--with justification. It is a very exciting time for us now as we glide through the entanglements of the past and emerge with more knowledge and experience and with realistic expectations of performance.
Jules Galanter, Region 9: Many of the downtown business districts in the upper Midwest are becoming overbuilt, as developers shift their emphasis from suburban areas. Suburban communities are imposing more severe impact fees, so the disparity in development costs between CBDs and outlying areas is narrowing. Suburban office parks are also suffering from continued slow absorption.
Chicago has a 14-percent vacancy rate now, but many new buildings are going up. Most of these new buildings are being built for specific companies, most of which are already located downtown. This leaves many older buildings with rising vacancies. The sale of the Sears Tower fell through in part because of the tremendous amount of available space that would be created when Sears vacates 1.8 million square feet in the building. Sears Tower is about 15 years old, and they may have a difficult time leasing that space with all the new, smart buildings that are coming on line.
Mixed-use properties are also suffering because of high office vacancies. Several such buildings have recently gone into foreclosure because the numbers would work only if the commercial space was leased up.
David Parks, Region 6: Our region is so diverse that it is difficult to generalize; each city has its own identity. Even in Kentucky, Lexington is growing, while the population of metropolitan Louisville has been stagnant for seven or eight years. At the same time, Lexington is overbuilt, with more new apartments and permits than projected growth.
As an older population becomes a reality for Region 6, the real estate manager will have to show creativity in finding ways to adapt existing properties to meet demands for smaller units and supported living.
Retail will also have to adapt. While the older population may not buy as many goods and services, the elderly tend to buy higher quality, more expensive items. …