Commercial Real Estate: Office oversupply in the South has investors concerned, Situs RERC survey respondents say

The industrial sector rated highest among all property types in the South region of the U.S. for its return vs. risk and value vs. price. Retail and office tied for the lowest risk-adjusted returns among the property types; office was the lowest rated from a value vs. price perspective. That’s according to a survey of regional respondents conducted for the May 2019 Situs RERC Real Estate Report, “Defensive Positioning.”

The South region continues to experience strong employment growth, a necessity for strong office performance, but investors are seeing supply outpace demand in many markets, particularly Austin.

Here’s a closer look at some of the major metro areas in the South:

MIAMI
Miami’s employment grew 2.1% over the last 12 months through 1Q 2019, adding 55,500 jobs. At 3.6%, unemployment is below the national average of 3.8%.

Condo resale prices in downtown Miami climbed in 2018 for the first time since they peaked in 2015, according to a residential market study by the Miami Downtown Development Authority and Integra Realty Resources. Few new condos are being built as the market absorbs units still being built or up for resale.

DALLAS-FORT WORTH (DFW)
DFW added 110,700 jobs over the last 12 months through 1Q 2019 as employment grew 3.0%. The unemployment rate at 3.5% is below the national average of 3.8%.

CRE investors are pleased that the Texas Legislature passed property tax reform this year. Rapidly rising property valuations have been leading to higher property taxes, which are passed on to tenants. The legislation, signed into law in June by Gov. Greg Abbott, provides some property tax relief for CRE investors.

ATLANTA
Atlanta’s employment grew 2.2% over the last 12 months through 1Q 2019, adding 60,300 jobs. At 3.8%, unemployment is equal to the national average of 3.8%.

Despite rising costs for construction and rents, office users still want new space in Atlanta. In many cases, Atlanta companies are trading their roomier, older floor plans for open office concepts and gathering spots designed to resemble the interior of a coffee shop, allowing them to save space and accommodate more work­ers per square foot.

In previous Newswatches, we looked at the West and Midwest regions of the U.S. In future weeks, we’ll look at the Situs RERC survey results for the East region of the U.S.

The Situs RERC Real Estate Report is the commercial real estate industry’s most respected and relied-upon survey-based resource of CRE investment criteria for risk analysis for over 45 years. This quarterly report is packed with a variety of valuation metrics, including cap rates, pre-tax yield/discount rates, and investor insights on the institutional, regional, and 47 major markets. To subscribe to the report, go to store.rerc.com or call 319.352.1500.

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