Author: Paula Guajardo

Maggie Hogan is a new certified property manager at Flake & Kelley Commercial in Little Rock. Hogan’s primary focus is managing office buildings and mixed-use properties.

www.arkansasbusiness.com to view the full article.

As the market for office space shows signs of recovery, the suburbs are getting left behind. A succession of mayors have revitalized downtown Houston, above, persuading companies like BG Group to relocate there from the suburbs. For decades, the suburbs benefited from companies seeking lower rent, less crime and a shorter commute for many workers. But now, office buildings in many city downtowns have stopped losing tenants or are filling up again even as the office space in the surrounding suburbs continues to empty, a challenge to the post-war trend in the American workplace and a sign of the economic recovery’s uneven geography.

Even some forlorn cities are showing signs of revival. In Detroit, Health insurer Blue Cross Blue Shield of Michigan next spring will start moving thousands of suburban employees into the downtown.

Like many cities, Detroit offered an incentive package, including giving Blue Cross employees free annual passes to a public-transit system that connects its downtown buildings. Another motivation: to have more people in one place as the insurer adjusts to the health-care overhaul.

Vacant office space in many downtown areas is filling up while their suburban counterparts continue to lose tenants. Kelsey Hubbard discusses the new trend with WSJ’s Anton Troianovski.
“We believed having everyone together would very much benefit us when we had to make quick changes as a result of national reform,” Blue Cross vice president Tricia Keith said.

Statistics show that suburban office markets were hit harder by the recession than their downtown counterparts and are recovering more slowly. The national office vacancy rate in downtowns was 14.9% at the end of the third quarter, the same level as in early 2005—while the suburban vacancy rate hit 19%, 2.3 percentage points higher than in 2005, according to data firm Reis Inc.

In the first three quarters of this year, businesses in the suburbs vacated a net 16 million square feet of occupied office space—nearly 280 football fields—while downtowns have stabilized, losing just 119,000 square feet.

Things were different after prior recessions. As commercial real estate recovered in 2003 and 2004, office space in the suburbs filled up faster than in downtowns, Reis’s data shows. For much of the 1990s, as businesses abandoned downtowns to be closer to their suburban work forces, suburban office buildings tended to be more occupied. But since early 2009, the opposite has happened in major metropolitan areas including Houston, Las Vegas, Miami, Pittsburgh and Phoenix—occupied office space increased downtown but dropped in the suburbs. Suburbs have been clobbered harder by a recession that hit businesses that are often based there, including mortgage lenders and home builders. Downtowns, on the other hand, have benefited from being home to less hard-hit sectors of the economy, such as government, and companies that have recovered more quickly, such as big banks.

To be sure, most American office workers continue to work in the suburbs—home to nearly twice as much office space as in central business districts, Reis says. And many real-estate developers largely expect suburban office markets to recover when job growth strengthens. But some scholars, urban advocates, and developers believe a secular shift is under way in the American workplace. “Young people don’t want to be out on the fringe…and as people are beginning to figure that out, it’s beginning to get factored into office relocations,” said Christopher Leinberger, a real-estate developer and a visiting fellow at the Brookings Institution. “It’s a major structural trend that we in real estate are going to have to adjust to.” Tale of Two Markets As the economy recovers, the suburbs, in many cases, are getting left behind. The metropolitan areas below have lost occupied office space in the suburbs since early 2009 while gaining occupancy downtown.

In suburban Los Angeles and Orange County, Calif., the amount of occupied office space has dropped by a combined 12.4 million square feet from January 2009 to the end of September 2010, or more than 5% of the entire inventory. The pain was much less severe in downtown Los Angeles, which lost 659,000 square feet over the same time period, or 1.8% of the total inventory, Reis data shows.

Detroit’s suburbs have lost more than two million square feet of occupied space since early 2009, 3.4% of its inventory, while the hard-hit downtown has lost just 42,000 square feet, just 0.3% of its total.

Progress made by cities from Denver to Pittsburgh in revitalizing their downtowns in the last decade also has played a role. New retail, nightlife and condominium projects have helped attract some tenants who had long been based in the suburbs.

In Chicago, UAL Corp.’s United Airlines is leaving its one-million-square-foot, 1960s-era office park near O’Hare International Airport for the tallest downtown office building, the Willis Tower.
In Houston, British energy company BG Group PLC is moving its U.S. headquarters from the suburbs to 164,000 square feet in a new skyscraper downtown. The company surveyed its employees and found downtown was a more convenient commuting destination, policy and corporate-affairs vice president David Keane said. BG also saw a recruitment edge thanks in part to the downtown-revitalization efforts of a succession of Houston mayors. “When you’re looking at new graduates coming into Houston, I think they want to be located downtown,” Mr. Keane said. Just this year, the country’s biggest office market, Manhattan, had gained 1.8 million square feet of occupied space as of September. Meanwhile, New York’s suburbs, from northern New Jersey to Westchester County, Long Island and Connecticut’s Fairfield County, continued to lose occupancy—to the tune of a combined 1.4 million square feet, Reis data shows.

That difference has been felt by big landlords such as SL Green Realty Corp., a major Manhattan skyscraper owner that also owns dozens of office buildings in New York’s suburbs. “Whereas New York is recovering, I’m not sure most of suburban America is recovering,” SL Green Chief Executive Marc Holliday said at the company’s annual investor meeting last week. In Denver, a light-rail system has contributed to a more vibrant downtown. Colliers International broker Brad Calbert, who helped arrange moves by energy companies SunCor Energy Inc. and Black Hills Corp. from the Denver suburbs to downtown, said, “There is a cultural transition going on.” For real-estate investors, the difference between suburban and downtown markets is stark. Downtown office buildings are sparking bidding wars especially in major cities like New York and Washington D.C. Meantime, many suburban office parks continue to languish on bank balance sheets, attracting few buyers. “We’re gravitating toward the well located, well leased sites mostly in the traditional urban areas,” said a spokesman for one of the country’s biggest real-estate investors, the California State Teachers Retirement System.

The Brookings Institution’s MetroMonitor, a quarterly, interactive barometer of the health of America’s 100 largest metropolitan economies, has ranked the Little Rock region the nation’s fourth strongest.

The Brookings Institution ranked the 100 largest metros by averaging the ranks for four key indicators: employment change, unemployment change, gross metropolitan product, and home price change. Employment was measured by the change from the peak quarter for each metro to the second quarter of 2009. The peak was the quarter in which the metro had the most jobs during the past five years. Unemployment was ranked by measuring the percentage-point change from the first quarter of 2009 to the second quarter of 2009. Gross metropolitan product was measured from the peak quarter to the second quarter of 2009. And the ranking of home prices compared the second quarter of 2009 to the previous quarter. The employment data were provided by Moody’s Economy.com, the unemployment data were collected from the U.S. Bureau of Labor Statistics, and the home price index came from the Federal Housing Finance Agency.

According to the report, the Little Rock region achieved the following rankings:

– Job Growth (Since Peak) – 11
– Gross Metro Product (Since Peak) – 24
– Unemployment Change (Year over Year) – 7
– Home Price Change (Year over Year) – 11

As reported by Business Week, “the economy in Little Rock, the state capital, has remained strong though the local unemployment rate has been rising… Employment in the Little Rock metro peaked in the first quarter of last year. Gross metropolitan product in the second quarter was down just 2.8% from the peak in the third quarter of 2008. Home prices grew 3% in the second quarter compared with the same period a year earlier. And the unemployment rate in June was 6.6%, up 2.1 points from a year earlier.”

The MetroMonitor examines trends in metropolitan-level employment, output, and housing conditions to look “beneath the hood” of national economic statistics to portray the diverse metropolitan trajectories of recession and recovery across the country. The aim of the MetroMonitor is to enhance understanding of the particular places and industries that drive national economic trends, and to promote public- and private-sector responses to the downturn that take into account metro areas’ unique starting points for eventual recovery.

Read the Full MetroMonitor Report

Little Rock has been named the seventh best metro for jobs in the nation. According to Forbes, the region’s net employment outlook is 12%, the percentage of jobs local employers expect to add this fall.

Forbes.com wrote: “Little Rock is home to Dillard’s Department Stores, Windstream Communications and Acxiom, which all hire in considerable numbers. The University of Arkansas drives hiring with its large medical complex.”

www.forbes.com for more information.

At number six, Arkansas has been named among the ten best markets in the U.S. for single-family real estate investment properties.

From The Wall Street Journal (August 21, 2010), By M.P. McQueen

Looking to snap up some investment properties on the cheap? You may want to consider Durham, N.C., Indianapolis and Huntsville, Ala (or Little Rock, Ark.). They are among the best places to invest now, according to a new report that ranks the best and worst markets for conservative residential-real-estate investors. Hard-hit Las Vegas and Orlando, Fla., are among the riskiest.

Local Market Monitor Inc., a Cary, N.C., firm that analyzes real-estate trends for lenders, builders and investors, compiled its first Investor Suitability Report using economic data through July 31 for 315 U.S. markets. The firm is best known for its housing-market forecasts, which use “equilibrium” home prices: what home values should be in relation to incomes, job growth and population. In its new report, it uses similar data to rank communities by their investment prospects, focusing on single-family homes.

Regions that rank highly for investment suitability are those where there is a low probability that home prices will fall further, says Local Market Monitor President Ingo Winzer. They are places where income is growing moderately; where employment is relatively stable because of a large percentage of jobs in health care, education or government; and where a relatively small share of jobs is in construction or financial services, which have been volatile. (Job losses in government and education tend to come later in an economic cycle, so some areas could be hit harder in coming months.)

The report, which excludes towns with fewer than 200,000 residents, focuses on price-appreciation potential instead of rental income, since falling home prices usually result in higher vacancy rates in apartment buildings and lower rents overall, Mr. Winzer says.

Good markets for conservative investors are those that already have stabilized and should yield average returns, Mr. Winzer says. Dangerous markets probably will see further price declines and have little potential for a turnaround because of poor local economies.

So-called speculative markets, by contrast, are those where prices could fall further, but which also have potential for greater appreciation of 3% to 5% annually after bottoming out—making them more suitable for investors with stronger stomachs. Local Market Monitor identifies Hagerstown, Md.; Jacksonville and Port St. Lucie, Fla.; Modesto, Calif.; and Myrtle Beach, S.C. as speculative areas.

In the best markets, home prices already are stabilizing. Durham, N.C., for instance, is home to Duke University and is near the University of North Carolina-Chapel Hill. Big companies like International Business Machines Corp., GlaxoSmithKline PLC and Nortel Networks Corp., as well as numerous biotech start-ups, have facilities at the nearby Research Triangle Corporate Park. About 40% of area jobs are in health, education or government, according to Local Market Monitor.

Haywood Davis, owner of a Century 21 real-estate brokerage in Durham, says home-sales volume in the area increased 13% last month over July 2009, though prices rose only slightly.

Some other metro areas with large percentages of relatively stable jobs and moderate growth include Knoxville, Tenn.; Lexington, Ky.; and Indianapolis.

Jason Moore, a 34-year-old auto-sales manager in Baltimore, took advantage of plunging home prices in his hometown of Indianapolis to snap up an investment property there—a brand-new four-bedroom, two-bath home—for $56,000 late in 2008.

Prices in Indianapolis were falling because of foreclosures and rising unemployment. Disappointed with their stock-market investments, Mr. Moore and his wife, Keisha, 32, decided to buy an investment property to add to their portfolio. The Indiana house is generating a positive cash flow of about $300 a month in rent after mortgage, insurance, taxes and fees, he says. If you are interested on getting the same insurance Mr. Moore has use this link to get all the details about this great insurance.

“It has been adding income, and the tax benefit has been helpful,” Mr. Moore says.

Yet in gambling-and-tourism-dependent Reno, Nev., home prices slid 50% from their market peak in 2006—and don’t seem to have bottomed yet. Mr. Winzer calls the city “frankly dangerous” for investors, along with Las Vegas and Naples and Orlando, Fla., because home prices are still tumbling and local economies are shaky.

John Burns, chief executive officer of John Burns Real Estate Consulting Inc. of Irvine, Calif., says he thinks Reno and Las Vegas have “overcorrected,” but he agrees prices could fall further.

Dana Hall-Bradley, a real-estate agent in Florida’s Orlando-Kissimmee area, near Disney World, says sales were up 39% last month over July 2009. But prices are still sliding because most sales involve so-called distressed properties—bank-owned homes or short sales, where lenders agree to sell properties for less than they are owed.

Investors, especially those from Canada, the U.K., Brazil and Venezuela, are buying vacation and retirement villas, condos and townhouses in the area, Ms. Hall-Bradley says, because prices already are 40% to 50% below what they were as late as 2007. Many are paying cash.

Condos are even cheaper. “Right now you can get a condo for $30,000 that was selling for $150,000 to $200,000 in 2005 or 2006,” she says.

Eamon Lavin of Locust Valley, N.Y., recently purchased three condo units and a single-family home in Celebration, a planned community outside Orlando designed by Walt Disney Co. Mr. Lavin, 43, says he knows prices could tumble further but he isn’t worried because he plans to rent out the properties for 10 or 15 years.

“I love the area, and I think it is going to come back,” he says. “I get more of a return on investment than putting it in a bank or anywhere else.”

Write to M.P. McQueen at mp.mcqueen@wsj.com.