GlobeSt.com UPDATE: Office Sales Down and Expected to Stay There

ORLANDO-The office investment market in Central Florida just went south and isn’t expected to return soon. That’s the gist of a special study completed by Ronald J. Rogg who heads the investment properties division (office/industrial) in Florida for CB Richard Ellis Inc.

Rogg outlined his findings at the annual meeting of the Central Florida Commercial Real Estate Society in Orlando.

“The market is saturated with product,” the broker told society members. “Pensions funds and advisers are over allocated; REITS are not aggressively buying development or stock buy-backs; and opportunity funds are on the selling side.”

For example, in the first eight months of the year in Orlando, $77 million worth of deals were done at an average price of $85 per sf compared to $215 million worth of transactions averaging $119 per sf in all of 2000.

In 1999, the last big investment sales year in metro Orlando, sales totaled $427 million with an average asking price of $102 per sf. In 1998, an even higher average per-sf price of $106 was generated on total transactions valued at $360 million.

As an example of saturation, Rogg’s numbers show 12 new office projects totaling 1.2 million sf are under construction. Preleasing is at 28%. Twenty-seven more projects totaling 2.7 million sf are on the drawing boards. Sublease space alone is at the 3.2 million-sf mark, according to other new figures from the Orlando office of Grubb & Ellis Co.

“Only private buyers are left,” Rogg tells GlobeSt.com, as lenders tighten underwriting guidelines. Among the potential buyers are institutions with 1031 requirements; selective institutions searching for core assets; some REITs; and private investors from Germany and the United Kingdom.

In the sellers’ stable are merchant developers, opportunity funds, REITs selling non-core assets, selective institutional funds and publicly-traded corporations.

There is 3.8 million sf of office product valued at $429 million currently on the market in Central Florida. “More is coming on line,” Rogg predicts. The average asking cap rate is 10%. The average asking per-sf price is $113.

Down the road for this year at least, Rogg sees a continued over-supply of product; flat rental growth; and an emphasis on in-place income and exit strategies by buyers.

The broker also projects the market will see more conservative underwriting; increased REIT buying activity; more emphasis on credit; and higher risk-adjusted yield requirements.

Nationally, the investment market isn’t any rosier, Rogg’s research finds. A total 400 office buildings aggregately valued at $37 billion were sold in 2000 versus 642 buildings sold in 1999 and 835 buildings changing hands in 1998.

Seventy-five percent of the national sales were done in the 24-hour, seven-day cities of New York, San Francisco, Washington, DC, Seattle and Boston.

Besides the 24/7 cities, buyers are still looking at product in high-growth and western cities such as Las Vegas, Phoenix, Austin, Los Angeles, Chicago, Houston and Atlanta, Rogg tells GlobeSt.com.

Among the hot products are apartments, industrial, grocery-anchored retail, refinancing, redevelopment and infill locations. Buyers, however, are not showing much interest in regional malls, power centers, office buildings, new development, high-tech and tertiary markets.

Nationally, the average marketing time for apartments is 5.83 months; strip centers, 5.88 months; suburban office, 6.75 months; industrial, seven months; and CBD office, 7.45 months.