Jones Lang LaSalle
Value Pricing
February 22, 2006; Page B4
Office and apartment values increased in the fourth quarter, but not as fast as prices did.
The average value of an office building increased 2.8% to $155.81 a square foot from $151.57 in the third quarter, according to a survey of the top 50 U.S. markets by New York real-estate research firm Reis Inc. But prices on buildings sold in the fourth quarter went up 5.4% to $207.21 a foot from $196.59 previously. That means the average building is selling for a 33% premium over its value, according to Reis's calculations.
Apartment values rose 2.6% to $82,306 a unit from $80,220 in the third quarter. Those that sold went for $100,266 a unit, up 4.9% from $95,582 in the previous quarter. Those prices represent a 21.8% premium over the average value.
Reis calculates value by dividing the income a building generates by its capitalization rate, or the return on investment in the first year of ownership. Office rents and vacancies have been improving lately. Those factors are helping buildings throw off more income and increased office values by 12.4% in 2005. Still, prices rose faster, by 21.2%.
"Investors have been given encouragement to continue in many cases to overpay," says Reis Chief Executive Lloyd Lynford. "Some soberness and prudence is warranted."
Apartment-market fundamentals have been aided by the condo-conversion craze, which has helped reduce supply. There are signs that that phenomenon is slowing, however, and apartment investors were less bullish in 2005 than office buyers -- prices were up 9.9%, while values rose 14.1%. Conversion starts plunged in the fourth quarter to 20,000 units from 44,000 in the third quarter, a sign that good conversion candidates are drying up and developers are having a harder time selling condos.
The New Mall Order
For a glimpse of how retailing has changed in the past half-century, take a look at a once "dead" mall in North Miami Beach.
That mall, the oldest in South Florida, will reopen Saturday after being effectively "demalled" in a $28 million renovation that puts a Wal-Mart supercenter and a Home Depot as anchors.
The Mall at 163rd Street was the first regional shopping center in the area when it opened as an outdoor mall in 1956. It included typical department-store anchors such as Woolworth, Burdines and Richards.
Those chains are all gone now, and the mall has struggled over the past couple of decades. Financier Sam Zell bought it and put a space-age fiberglass fabric roof over its stores in the early 1980s, but a competing mall opened nearby in 1983, and Mr. Zell had to turn the mall over to the banks in the late 1990s.
New Plan Excel Realty Trust Inc., a New York-based strip-mall real-estate investment trust, bought it and demolished half the mall, put Office Depot and Ross Dress for Less in as minianchors and turned the rest into a "power center," betting that Wal-Mart, once the bane of mall owners, will prove a boon. New Plan is making a habit of demalling, with similar projects in Clearwater, Fla., and Cleveland.
Tokyo Rising
Mitsubishi Estate Co. and other big Japanese real-estate developers are in talks with some office-building tenants in Tokyo to raise rents, another sign that Japan is breaking its deflationary shackles.
For existing tenants that renew leases every other year, the real-estate developers are raising rents for the first time in five years, reflecting improving corporate earnings and increasing demand. Rent increases for Mitsubishi Estate's tenants that have agreed to new terms are generally below 10%, the company said.
While Mitsubishi Estate isn't uniformly lifting rents for Tokyo-area tenants, "we are asking to bring [rent] back to previous levels" for tenants whose rents had been lowered for reasons such as deteriorating earnings, a company spokesman said.
Office buildings under construction may result in a glut of space in the future, but real-estate firms expect favorable market conditions to continue.
Commercial real-estate consulting firm Miki Shoji Co. said the office-space vacancy ratio continues to decline, and rent has risen more than 3% from a year earlier in key areas in central Tokyo.
Value Pricing
February 22, 2006; Page B4
Office and apartment values increased in the fourth quarter, but not as fast as prices did.
The average value of an office building increased 2.8% to $155.81 a square foot from $151.57 in the third quarter, according to a survey of the top 50 U.S. markets by New York real-estate research firm Reis Inc. But prices on buildings sold in the fourth quarter went up 5.4% to $207.21 a foot from $196.59 previously. That means the average building is selling for a 33% premium over its value, according to Reis's calculations.
Apartment values rose 2.6% to $82,306 a unit from $80,220 in the third quarter. Those that sold went for $100,266 a unit, up 4.9% from $95,582 in the previous quarter. Those prices represent a 21.8% premium over the average value.
Reis calculates value by dividing the income a building generates by its capitalization rate, or the return on investment in the first year of ownership. Office rents and vacancies have been improving lately. Those factors are helping buildings throw off more income and increased office values by 12.4% in 2005. Still, prices rose faster, by 21.2%.
"Investors have been given encouragement to continue in many cases to overpay," says Reis Chief Executive Lloyd Lynford. "Some soberness and prudence is warranted."
Apartment-market fundamentals have been aided by the condo-conversion craze, which has helped reduce supply. There are signs that that phenomenon is slowing, however, and apartment investors were less bullish in 2005 than office buyers -- prices were up 9.9%, while values rose 14.1%. Conversion starts plunged in the fourth quarter to 20,000 units from 44,000 in the third quarter, a sign that good conversion candidates are drying up and developers are having a harder time selling condos.
The New Mall Order
For a glimpse of how retailing has changed in the past half-century, take a look at a once "dead" mall in North Miami Beach.
That mall, the oldest in South Florida, will reopen Saturday after being effectively "demalled" in a $28 million renovation that puts a Wal-Mart supercenter and a Home Depot as anchors.
The Mall at 163rd Street was the first regional shopping center in the area when it opened as an outdoor mall in 1956. It included typical department-store anchors such as Woolworth, Burdines and Richards.
Those chains are all gone now, and the mall has struggled over the past couple of decades. Financier Sam Zell bought it and put a space-age fiberglass fabric roof over its stores in the early 1980s, but a competing mall opened nearby in 1983, and Mr. Zell had to turn the mall over to the banks in the late 1990s.
New Plan Excel Realty Trust Inc., a New York-based strip-mall real-estate investment trust, bought it and demolished half the mall, put Office Depot and Ross Dress for Less in as minianchors and turned the rest into a "power center," betting that Wal-Mart, once the bane of mall owners, will prove a boon. New Plan is making a habit of demalling, with similar projects in Clearwater, Fla., and Cleveland.
Tokyo Rising
Mitsubishi Estate Co. and other big Japanese real-estate developers are in talks with some office-building tenants in Tokyo to raise rents, another sign that Japan is breaking its deflationary shackles.
For existing tenants that renew leases every other year, the real-estate developers are raising rents for the first time in five years, reflecting improving corporate earnings and increasing demand. Rent increases for Mitsubishi Estate's tenants that have agreed to new terms are generally below 10%, the company said.
While Mitsubishi Estate isn't uniformly lifting rents for Tokyo-area tenants, "we are asking to bring [rent] back to previous levels" for tenants whose rents had been lowered for reasons such as deteriorating earnings, a company spokesman said.
Office buildings under construction may result in a glut of space in the future, but real-estate firms expect favorable market conditions to continue.
Commercial real-estate consulting firm Miki Shoji Co. said the office-space vacancy ratio continues to decline, and rent has risen more than 3% from a year earlier in key areas in central Tokyo.
posted by Jones Lang LaSalle NJ News Blog at 4:52 PM
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