Business owners in the state of Minnesota hold a distinct advantage as it is one of only 15 states across the nation that doesn't levy property taxes on equipment, inventory and other on-site personal property. While the state is the 8th highest in terms of property taxes on commercial property, the savings from having no personal property taxes can result in hundreds of thousands of dollars per year for larger manufacturers.
Overall nonresidential construction is expected to decline by 5.6% this year, but forecasters are projecting a 6.4% increase in spending in 2012. According to the American Institute of Architects, consumer and business confidence is poor, and the overall economy has yet to pull out of the downturn that began in 2008, which both add to the general sense of anxiety and uncertainty in the commercial real estate market.
Nashville, Tennessee is experiencing an increase in hotel construction with around 1,400 rooms being built and 2,100 in the planning stages. According to The Tennessean, the surge of construction, which could increase the regions supply by 10%, comes as no surprise to industry experts as Middle Tennessee has been a top destination for hotel developers because of its market dynamics, improved travel demand and greater availability of capital.
With steady demand for apartments leading the way, the commercial real estate market is increasing its stability. According to Bloomberg Businessweek, a Moody's review of commercial property trends in the first quarter shows modest market improvement, with the projected rate at which commercial space is being leased edging out the rate of increase in the supply of commercial space. Moody's customized scales showed central business district and suburban office markets rising moderately, while multi-family, retail and industrial markets were consistent with the previous quarter.
Las Vegas, Nevada commercial real estate has been one of the hardest hit sectors by the economy, as the market was already flooded with unused space from overbuilding during its boom prior to the recession. According to VEGAS INC, it has become the norm to see Las Vegas businesses close or relocate for cheaper rent, leading landlords of office, industrial and retail properties to lose tenants, not be able to make loan payments, and have their properties foreclosed on by banks.
Commercial Mortgage Backed Securities (CMBS) analyst, Fitch Ratings, contends that the post-recession crop of loans is less risky than those securitized in 2007, the most volatile year for CMBS. According to the National Real Estate Investor, Fitch agrees with many people's fear that underwriting standards of CMBS loans have deteriorated in recent months, but contests that the decline is from CMBS lending standards adopted immediately after the last recession which produced some of the most stringent criteria in the sectors history.
Despite differing reports from the second quarter, commercial real estate experts all expect office vacancies to fall in Seattle, Washington for the remainder of 2011. According to The Seattle Business Times, all three major brokerages conducting vacancy reports in the Seattle area found positive "absorption" last quarter - a measure of how total office-space occupancy has changed, regardless of changes in supply.
With a boost in value from the rebound in distressed real estate, U.S. commercial property prices increased for the first time in six months this May. According to Bloomberg, The Moody's/REAL Commercial Property Price Index (CPPI) rose 6.3% from April, the largest gain since the measure began in 2000. It will take more big jumps to get things back to the way they were as the index is still down 11% from a year earlier and 46% below the peak of October 2007.
With the announcement by Borders that they have asked a bankruptcy judge to let it cease operations and liquidate its remaining 399 locations, the real estate implications it will cause are coming to the forefront. According to businessjournalism.org, with an already grim looking national retail real estate landscape from empty hulks of default chains like circuit city, as well as closed car dealerships and selectively shuttered locations of still-going concerns like Kmart, the addition of these 45,000 square-foot behemoths won't bode well for local real estate markets across the country.
Compared with the residential real estate market, commercial real estate has made some strides in recovery, but progress is likely to remain slow due to employers reluctance to hire and expand amid a still shaky economy. According to FOX Business, REITs allow consumers to invest in a professionally-managed portfolio made up of income-producing properties. For the past thirty years they have been a solid investment, outperforming stocks and bonds.
Hotel occupancy gains are still outpacing gains in room rates, as the U.S. hospitality industry continues on with its recovery that was established in the first quarter of 2010. According to PKF Hospitality Research, forecasts for the demand of U.S. hotel rooms in 2011 will increase 4.9%, while the average daily room rate paid by guests will rise 2.4%. The 4.9% increase in occupied rooms compares to the 7.6% increase in 2010, both of which are well above the long-term average annual demand growth rate of 1.5%.
Several recent rulings of the Virginia Tax Commissioner have further defined the status of assets regarding their classification as machinery and tools. In Virginia, only assets that are directly involved in the manufacturing process are subject to the machinery and tools tax at the local level. Over the years there have been rulings, opinions and court cases that further define whether an asset is part of the manufacturing process making the picture a bit clearer, but significant ambiguities remain.
Office vacancies in the United States continued to decline in the second quarter of 2011, dropping to 16.2%. This marks the fourth consecutive quarter of decline since office vacancy peaked at 16.8%. According to the National Real Estate Investor, national industrial availability (space that is actively being marketed and available for tenant build-out) rates also dropped in the second quarter to 13.9%, and marked a fourth consecutive quarterly decline as well. The Multi-Family sector joined in too and saw a vacancy decline of 20 basis points down to 5.4%.
U.S. Malls and Strip Centers saw vacancy rates rise once again in the second quarter as the economy continues to prevent small-store owners from flourishing. According to The Wall Street Journal, the average vacancy rate at malls in the top 80 U.S. markets increased to 9.3% in the second quarter from 9.1% in the first, the highest such numbers on record since tracking started in 2000. Average lease rates, however, remained unchanged at $38.77 per square foot per year.
As 2011 hits the halfway point, a growing number of commercial real estate investors are reaching beyond the safety of well-located, fully leased properties in major gateway cities. According to the National Real Estate Investor, fed up with intense competition for assets and high prices driven by bidding wars, opportunity hunters are buying up semi-vacant office buildings, retail centers and apartments in primary markets, as well as assets in smaller cities that are just now beginning to recover.
The U.S. apartment sector produced near-record revenue growth in the second quarter of 2011. According to OKCREview.com, occupancy climbed 0.8% during the past three months, and effective rents jumped 1.7%, taking the total revenue lift for the quarter to 2.5%. Large apartment property sales also rose, totaling $3.9 billion in May, boosting the year-over-year growth rate to 96%. Year-to-date apartment sales are up 80% from a year ago at $16 billion.
Three new job-creating projects from companies operating in Indiana's eroded industrial sector are seeking property tax abatements from the city of Indianapolis. According to indystar.com, Carrier Corp. plans to hire 276 people at its Indianapolis furnace factory, Navistar is looking at a $19 million reinvestment at their engine foundry plant to save 200 jobs, and Enterprise Leasing Co. is looking to move its 57-person office from Carmel to Indianapolis. All three projects are seeking preliminary approval of tax abatements from the Metropolitan Development Commission.
The volume of distressed commercial real estate in the United States continues to remain high as recent figures report $181.1 billion in June 2011 for such properties. That figure is a $0.5 billion increase since the last reported numbers in April. According to GlobeSt.com, distressed volume began to show signs of leveling off in March 2010, but since then has cycled between lows of $175 billion and highs of $190 billion, peaking at $191.5 billion in October 2010.
As the market for commercial real estate loans starts its comeback, so too are the risky practices that were common in the recent boom. According to the New York Times, an increasing number of financial institutions are vying to make loans again on commercial real estate, but many buildings are still drowning under heavy debt loads, leaving few properties that can support new borrowing. This leaves extremely fierce competition for the few viable loans available.