Trends: Affecting Real Estate Management
This RVP roundtable took place during the 1997 IREM National Convention in New Orleans. All participants are CERTIFIED PROPERTY MANAGERS.
JPM (Goodacre): Although most real estate markets are in the middle of a recovery, many experts already are predicting that the next wave of overbuilding is just over the horizon. Have you seen evidence of this in your region?
Luesing (Region 4): We are seeing the beginnings of overbuilding in our region, particularly in high-end apartments. One thing that may check oversupply is the increasing presence of REITs, who are traditionally more interested in buying existing properties than in development. This may help hold down new construction.
Murray (Region 2): In our region, we still have legal and environmental barriers to entry that hinder new construction, even though money is available. There is product in the pipeline that will come on line in the next 24 to 36 months, but it will not be enough to create overbuilding. There is a lack of industrial space throughout the region, especially large, contiguous blocks, so a significant amount of development is planned.
Pittsburgh is the only exception; it has flat growth in all product types because of weak economic growth. Smith (Region 3): The overbuilding is not here yet, but we are seeing a flattening of rents in some pockets. And in our area, the REITs are active in development because the yields on existing product are getting too low. Other players have been less active because of their need to borrow. Capital is available, but it is more disciplined; so if you depend on financing, you may still face difficulties unless you have significant preleasing.
Palmer (Region 8): We have some signs of overbuilding in Phoenix, Denver, and Las Vegas, primarily because of low-interest money.
Freeman (Region 7): In Texas, you are never oversupplied, just underdemanded. Austin and San Antonio are seeing apartment overbuilding The 221 (d)4 program is being used extensively because of the minimum equity requirement. Quite a few inexperienced developers are entering this market, which may end up producing a lot of product we don't need.
Strangely enough, new environmental permits on water use have also spurred development in Austin. The process is so lengthy and there is so much sunk cost involved in the permitting process that developers feel compelled to go ahead with projects even if the market cannot support them.
Wilson (Region 13): In Charlotte, we are not seeing overbuilding. Office vacancies are 7.1 percent, the lowest in nine years, although there are 19 buildings under construction. But absorption is keeping pace.
Keshavjee (Canada West): Canada is still suffering from an oversupply of commercial space, particularly in downtown cores. Absorption is slow, particularly for B and C space. The limited development being done is primarily corporate properties with substantial preleasing, although there is speculative development in the suburbs.
In Vancouver some development is occurring in higher-end properties, but the remainder of western Canada is only now absorbing the space built in the 1980s. Interest rates are favorable, but major players are guarded. We have learned our lesson.
Goss (Region 5): Many new industries are coming into our region, so we are seeing some guarded expansion in both commercial and residential.
Dickerson (Region 10): In our region, there is concern that apartments are being built faster than they can be absorbed. It is not a major problem yet, but it may be by 1999 if the pace continues.
Another concern is retail. Occupancy is still high, but strip and power centers are being added far faster than the growth in retail sales and personal income, so a real problem may exist in a year or two.
Toothaker (Region 6): Most market areas in our region are experiencing no problems with overbuilding because of good growth. …