Annual Review & Forecast 66th
Woodlands, the approximately 6,000-acre, mixed-use community
located 30 miles north of the CBD on Interstate 45. In June 2011,
Exxon Mobil announced the development of a 385-acre tract of
land there that would house its consolidated offices. “There are a
lot of terrific mid- and long-term prospects for that region because
of that announcement,” Clarke says.
Though Casey and Clarke like what’s going to happen in 2012,
both caution that much of the predictions are based on macro factors. “As with anything, there’s always the caveat of ‘barring some
big world event,’ ” Clarke says. “There’s some caution with regard
to what’s going to happen in the election year and how things will
shake out.” Still, “I think people feel pretty darn good about Texas
in general, and Houston in particular,” Clarke says.
Moving out of Texas, Phoenix had a bright spot in 2011—the
industrial sector—and experts expect even more growth in 2012.
What impressed CBRE senior vice president Pat Feeney about 2011
was that a good chunk of the absorption—around 60%—was by
smaller users taking down 200,000 square feet and less, rather than
the million-square-foot tenants. “That’s a healthier number than
we saw in 2010,” Feeney remarks. “The base is broader and it
involves all the submarkets.”
Continued economic woes in California will likely drive more
users to Phoenix this year, predicts Zach Aulick, vice president of
research with Cassidy Turley BRE Commercial. As Arizona doesn’t
tax on Internet sales, “we’ll continue to see companies from
California, and perhaps other states as well, coming to Arizona,”
Aulick predicts.
Though much of what will go up in the coming year will be
build-to-suits, the market is slowly moving toward that tipping
point in which spec development might make sense. Feeney
explains that users coming to the market 24 months ago looking
for 300,000 square feet had their pick of buildings. “Fast-forward
to today, and one building is available,” he says. “If you’re looking
for 200,000 square feet, there are only two of those available.”
Feeney says the market isn’t necessarily strong enough to justify a
whole lot of spec development, but “we’re much closer than we
were 18 months ago.”—Amy Wolff Sorter
WEST
The major markets on the West Coast have held up relatively well, for the most part, but some have fared better than others. One of the stronger economies in the region is San Francisco,
driven by healthy employment growth in the technology and professional and business services sectors. Moody’s Analytics forecast
the city’s economy would continue on its upward trajectory with
employment expanding 2% in 2012 followed by growth accelerating in the mid-3% range through 2014 and 2015.
That bodes well for the office market, says Caroline Green,
director of research for Northern California and the Pacific
Northwest at Cushman & Wakefield. “Leasing activity, coupled with
a lack of space returned to the market, resulted in overall net
66 REAL ESTATE FORUM FEBRUARY/MARCH 2012
absorption reaching positive 2. 3 million square feet, after three
years of negative overall net absorption,” she explains.
With employment growth expected to remain healthy through
the next few years, C&W’s forecast calls for market conditions to
tighten further, exerting upward pressure on rental rates. The firm
also expects the overall vacancy rate to fall into the single digits by
2014. “Class A rent growth is forecast to climb more than 30% during
this period, surpassing the $50-per-square-foot mark by 2014,” says
Green. “Given strong market fundamentals, coupled with a positive
Employment growth, tighter market
conditions will exert upward
pressure on San Francisco office
rents. Tech industry expansion is
giving retail and multifamily in
Downtown Seattle a boost. Supply-
demand imbalance is keeping
Las Vegas in fragile territory.
outlook, especially relative to other markets across the country,
investment is expected to remain healthy with institutional buyers
competing aggressively for properties pushing down cap rates.”
A recent Northern California report from Cassidy Turley says
that for 2012, the San Francisco office market will record a total
occupancy growth in the neighborhood of 1. 6 to 1. 7 million square
feet. Based upon those growth numbers, the firm believes vacancy
levels should fall to approximately 10.2% by the end of next year.
By the end of 2012, Cassidy Turley expects office asking rents to
average around $3.43 per square foot. Asking rents are currently
averaging $3.03 per square foot.
On the retail side, according to Marcus & Millichap’s Jeffrey
Mishkin, a first VP and regional manager of the San Francisco
office, storefronts citywide stand to benefit from the area’s “vigor-
ous tech revival,” which “will generate strong tenant demand for
the short supply of empty urban suites and push vacancy below pre-
recession levels.” He adds, “In-city leasing activity in 2012 will build
on last year’s surge as both domestic and international retailers
expand their local presence.”
Similarly, in Seattle, expansion in Puget Sound’s tech industry and
retailers’ growing preference for urban storefronts will elevate leas-
ing activity Downtown, says Justin White, a VP of the Pacific Northwest
at Marcus & Millichap. “The creation of thousands of tech jobs by
Seattle firms—most notably Amazon—improved store traffic and
earnings for Downtown retailers, stabilizing existing operations and
attracting new tenants over the past two years,” he observes.
According to White, in 2012, King County trade areas will
www.reforum.com
