Jones Lang LaSalle


PLOTS & PLOYS
Pricey Peripherals
March 15, 2006; Page B4

Despite signs of a housing-market slowdown, the number of areas in the U.S. rated as "extremely overvalued" continues to climb. And in addition to the usual suspects on both coasts, some peripheral markets are getting more pricey.

According to Global Insight/National City's quarterly housing valuation analysis, 42% of the U.S. housing market was overvalued and at risk for a price correction during the fourth quarter of 2005. The study analyzed 299 metro areas in the U.S., which account for 76% of all single-family housing units. The number of extremely overvalued markets increased to 71 from 61 in the third quarter.

California and Florida had the highest concentration, accounting for 18 of the 20 most overvalued metro areas. But in terms of markets that had the biggest valuation increases during the quarter, Bend, Ore., had the second-highest increase after Naples, Fla., growing 13% from the earlier quarter. Boise City, Idaho, and St. George, Utah, also had substantial valuation increases.

Richard DeKaser, chief economist at National City Corp., says the findings show equity-rich homeowners are cashing out of places like California and moving to such secondary markets in Oregon and Idaho.

The analysis deems markets that are overvalued by 30% at risk for price corrections based on the typical degree of overvaluation that preceded the 63 market price declines observed since 1985.

'I Double-Dare You'
In a hot office market like Bellevue, Wash., developers should be elbowing each other out of the way to get new buildings started.

And indeed, it looked like that would happen this year. No fewer than six developers announced plans to construct office buildings in this suburb where rental rates are slightly cheaper than in nearby Seattle. Vacancy in the Bellevue submarket has dropped to 8.8% from 14.8% in just one year, according to Colliers International Inc.

But these developers can do the math and have realized that if the six proposed buildings were built, three million square feet of office space would come online in a market with only six million square feet now. So it's become a game of dare, with no developer actually starting construction.
"It's interesting to see who is going to go first and see what will get done, because they could easily overbuild the market overnight," says Craig Hill, senior vice president and managing director for Grubb & Ellis in Seattle.

Of the six buildings, only Lincoln Square, owned by Kemper Development Co. of Bellevue, has hooked a tenant. Outdoor sportswear company Eddie Bauer is relocating its headquarters from nearby Redmond. Odds are that Lincoln Square will go forward sometime in the second quarter.