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Presented By
RICHARD ZIGLER Director of Research
Commercial Real Estate TrendsCommercial Real Estate Trends
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OUTLINEOUTLINE
Industry Overview Major Events and Developments
Occupancy Changes Across the Markets
Rental Rates Across the Markets
Key Trends Economic Factors
Mobility Improvements
Current Construction and Expansions
Where are the Markets Going?
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Industry OverviewIndustry Overview
Retail Market - closing of Kmart, Albertson’s, Service Merchandise
- entrance of Kohl’s; expansions of HEB, Wal-Mart,
the Galleria, Memorial City Mall and drugstores
Office Market - Enron bankruptcy, Dynegy and Reliant turmoil,
Arthur Andersen scandal, Compaq merger, etc.
Multifamily Market – home ownership is an attractive alternative.
Still… high level of new construction
Industrial Market – softer than in previous years, very low demand
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Office & Industrial sectors posted the sharpest decline in occupancy rate
Multifamily Market was the most robust sector with a 92.6% occupancy
Retail Market also experienced a decline in occupancy rate from 86.5% to 85.1%
Real Estate was not an exception in the 2002 economic slow-down
Occupancy Changes
75%
80%
85%
90%
95%
100%
Multi-Family Office Retail Industrial*
2001 2002
Industry OverviewIndustry Overview
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Office and Retail sectors posted a slight decline in rental rates, less than $0.01
Apartment Market was the only sector to post somewhat higher rents, from $0.74 to $0.76 per square foot
Industrial Market was rather soft and rental rates were flat
2002 rental rates remained relatively flat across all markets
Rental Rates Across Markets
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
Multi-Family Office Retail Industrial*
2001 2002
Industry OverviewIndustry Overview
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US economy is still posting slow growth figures
Headlines are screaming about increasing unemployment
Interest Rates are at a record low
The specter of war adding more pressure
Key TrendsKey Trends
Better Times on the Horizon?
Economic Recovery is expected in the second half of 2003
BUT… the War is now the biggest determinant!
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Key TrendsKey Trends
Local mobility improvements include
West Loop (610) & I-10 expansions
Westpark Tollway construction
Fort Bend Toll Road & Grand
Parkway planned expansion
$235 mill. local street improvements
Despite the hard times, Houston continues to grow and expand
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The suburban markets are developing at a rapid rate
Key TrendsKey Trends
Major markets include:
Silverlake/Pearland
The Woodlands
Fort Bend
Katy
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Key TrendsKey Trends
For Retail some submarkets are more promising than others
Powered by new home construction, retail expansion is at its
peak, especially in the suburban markets
Suburbs offer great opportunities for retail
Empty retail boxes in the city! High Construction in the suburbs!
VS
SilverlakeHouston
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Key TrendsKey Trends
Due to low mortgage rates, tenants are choosing home ownership!
But why is Apartment construction so aggressive?
11,632 units are under construction! Will they be absorbed? We are building high-rises too!
1200 Post Oak
The Greenbriar
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Key TrendsKey Trends
The Office Market is perhaps the weakest one
High level of construction in CBD
Businesses are shrinking, no job growth
These trends result in negative absorption figures
The Industrial Market is in imbalance
Bankruptcies and heavy construction have
added plenty of empty space
Due to business failures, demand is very low
But thankfully… construction has slowed 16516 Air Center Blvd
5 Houston Center
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Office Market occupancy will continue to decline by 2 - 2.5 points
Inventory will increase by 1.7 million after the construction of the
Reliant Resource Plaza (844,000 SF) and Calpine Center (689,028 SF)
Where are the Markets Going?Where are the Markets Going?
Retail Market will remain healthy due to residential expansions
In 2003, 4.5 million SF of retail space will be opened, occupied mainly by
discount stores (27%) and supermarkets (19%)
Multifamily construction remains high but demand is flat
Vacancy is expected to rise by 1.5 points. Class A vacancy may rise by 8 points!
Industrial sector will not reach equilibrium until mid 2005
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Thank YouThank You
Questions ?
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RICHARD ZIGLER Director of Research
Real Estate Valuation, Research & ConsultingReal Estate Valuation, Research & Consulting
O’Connor & AssociatesO’Connor & Associates www.poconnor.com www.poconnor.com 713-686-9955 713-686-9955
O’Connor & Associates 2000 N Loop W, # 110 Houston, TX 77018
713-686-9955