When coming out of prior recessions suburban office properties have led central business district (CBD) office properties. This is due to the burgeoning suburbs, desire for shorter commutes, and lower rents. This trend exacerbated the dichotomy between suburban and in-town office properties. However, the trend has reversed this time around, with CBD office property leading the recovery. In a recent poll commercial real estate investors called office buildings a "hold" as often as they called office a "buy."
Recently, investors that focus on office have been in two different camps. Half of them think now is the time to buy office properties and the other half think that this is a good time to just hold what you have and wait. It seems the investors in the "buy" camp are predominantly focused on best of breed CBD properties. Given the continued high jobless numbers and vacancy rates in the suburban office segment, it will be a long wait before rents rise with any conviction.
Although office space leasing activity was up 27% in 2010 vs. 2009, free rent concessions were prevalent, with up to twenty months of free rent offered for a ten year lease agreement. Atlanta area office property capitalization rates declined to 8.84 from 8.95 percent quarter over quarter and declined from 9.03 percent year over year. The national CBD office market also saw small declines in capitalization rates to a recent 7.53 percent, and national suburban rates declined to 8.17 percent.
The default rate on commercial mortgage backed securities (CMBS) reached a new high in February of 9.39% as reported by the Wall Street Journal. Although the rate of default on office focused CMBS was lower at 7.1% it had one of the largest increases of the commercial property types, increasing from a default rate of 6.88% in January. Office space rental rates have been overall stable but operating expenses are increasing.
Leading, downtown, trophy office buildings are the only office properties selling for premium prices and suburban office is lagging. Continued pressure on rents coupled with high vacancy rates will continue to adversely affect pricing. Overall Atlanta office properties are selling for 50% to 100% of replacement cost with an average price of 80% of replacement cost. 2011 is a good time to appeal your property tax assessment.
This is a good year to appeal your office building property tax assessment. Vacancy remains high and rents are stable at best. Capitalization rates have fallen slightly but this is no time to shout "all clear." Let's save some money.
Recently, investors that focus on office have been in two different camps. Half of them think now is the time to buy office properties and the other half think that this is a good time to just hold what you have and wait. It seems the investors in the "buy" camp are predominantly focused on best of breed CBD properties. Given the continued high jobless numbers and vacancy rates in the suburban office segment, it will be a long wait before rents rise with any conviction.
Although office space leasing activity was up 27% in 2010 vs. 2009, free rent concessions were prevalent, with up to twenty months of free rent offered for a ten year lease agreement. Atlanta area office property capitalization rates declined to 8.84 from 8.95 percent quarter over quarter and declined from 9.03 percent year over year. The national CBD office market also saw small declines in capitalization rates to a recent 7.53 percent, and national suburban rates declined to 8.17 percent.
The default rate on commercial mortgage backed securities (CMBS) reached a new high in February of 9.39% as reported by the Wall Street Journal. Although the rate of default on office focused CMBS was lower at 7.1% it had one of the largest increases of the commercial property types, increasing from a default rate of 6.88% in January. Office space rental rates have been overall stable but operating expenses are increasing.
Leading, downtown, trophy office buildings are the only office properties selling for premium prices and suburban office is lagging. Continued pressure on rents coupled with high vacancy rates will continue to adversely affect pricing. Overall Atlanta office properties are selling for 50% to 100% of replacement cost with an average price of 80% of replacement cost. 2011 is a good time to appeal your property tax assessment.
This is a good year to appeal your office building property tax assessment. Vacancy remains high and rents are stable at best. Capitalization rates have fallen slightly but this is no time to shout "all clear." Let's save some money.
About the Author:
Learn more about commercial property tax appeals by visiting Dan's website and learn more about his property tax experience.
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