February 11, 2008
Buyer's market | At the annual MEREDA real estate forecast conference, experts weigh in on a difficult 2007 — and look forward to 2008
By Kerry Elson
On January 24, the Maine Real Estate and Development Association presented its annual conference at the Holiday Inn by the Bay in Portland. More than 500 attendees heard presentations on the residential, commercial and industrial real estate markets in the Portland region, Bangor and Lewiston-Auburn.
Here are some highlights from the conference:
Industrial
Michael Miller, senior industrial specialist with NAI The Dunham Group in Portland, said the first six months of 2007 were the slowest in his 24 years as an industrial broker. "It was slow bordering on dismal," he says.
Miller cited a decrease in speculative development and a slowdown in new construction as building costs rose during the year. New construction also was impacted due to government regulations like the Maine Department of Environmental Protection's new rules governing vernal pools, which restricted the use of some previously available properties.
As a result, prices for existing properties stalled, land prices were flat and speculative development ceased during 2007. What's more, sale and lease prices were flat for the first time in a decade.
But when the calendar turned to 2008, it was as if "someone flipped a switch," says Miller, who expects a stronger market this year. Lower interest rates will make owning property more attractive than leasing, and a relatively small supply will mean heavy demand ˆ and higher prices ˆ for available properties. Miller expects prices in the industrial rental market to be stagnant because of a large inventory of lease space, and advises landlords to make an extra effort to retain tenants.
Commercial
In the Portland region, the office market increased by about 240,000 sq. ft. in the last year, either through vacancies or new construction. Of that amount, tenants occupied about 200,000 sq. ft., said Drew Sigfridson, a broker with CB Richard Ellis/The Boulos Co. in Portland.
Most of that space was occupied by the following: CIEE, which purchased a 61,129-square-foot office condo at a new office building at 300 Fore St. in Portland; Woodard & Curran, which leased 24,000 sq. ft. at 41 Hutchins Dr.; and Gorham Savings Bank, which leased 34,000 sq. ft. at 63 Marginal Way.
Of the nearly 11 million sq. ft. in the region's office market overall, about 6.21% is vacant, a 0.23% increase over 2006, Sigfridson said. The figure rose mostly because Anthem Blue Cross & Blue Shield last June moved its Portland operation to South Portland, vacating an 85,000-square-foot office at 110 Free St.
In 2008, Sigfridson predicts increasing demand for office space on the Portland peninsula. But the market still will be uncertain, so he expects developers to forgo new construction for more cost-effective renovation projects.
Meanwhile, the office vacancy rate in Lewiston-Auburn remained steady from 2006 to 2007, at 12.2%, said Daren Hebold, a broker at Ram Harnden Commercial Real Estate Services.
The rate stayed the same because small tenants, those occupying less than 4,000 sq. ft., were essentially trading offices, or "playing musical chairs," as Hebold put it.
Retail
The overall retail vacancy rate in the Portland region rose to 5.6% in 2007, the highest since 2003, said Dale Holman of Malone Commercial Brokers. For some brokers at the firm, he said, summer 2007 was the worst of the last 20 years, thanks to a weak national economy.
But even in this weak market, developers plan to build more than 1 million sq. ft. of retail space in Greater Portland this year, mostly around the Gateway at Scarborough development anchored by retailer Cabela's. Holman called those plans "alarming," given the high retail vacancy rate and a tepid 1% sales growth at the Maine Mall from 2006 to 2007. Developers are hoping the cyclical retail market improves by the time construction is complete.
Leasing all that new space still may be difficult, Holman said, so developers are likely to adjust their plans. "I think there's going to be cutbacks, I really do," he said, speaking from his Portland office a few days after the conference. Tenants may back out on their own: Cracker Barrel, a Tennessee-based restaurant chain, opted out of the Cabela's development last November, unsure whether the investment would pay off, according to Holman.
Residential, single and multi-family
You've heard it before: The residential housing market plunged last year. Anne Weigel, a Realtor at Coldwell Banker Residential Brokerage in Portland, had numbers to back the claim. In Maine, home prices rose just 0.77% over the last year, according to early statistics from the Maine Real Estate Information System. By contrast, Maine's median home sales price rose about 9% from 2004 to 2005.
Wiegel predicts that home prices will bottom out by the second quarter of 2008. The Portland market, in particular, is likely to improve, thanks in part to the good press coverage in the last two years. Frommer's Travel Guides last year cited Portland as one of the world's top 12 travel destinations, Weigel notes.
In the multi-family home market, Brit Vitalius of Sullivan Multi-Family Realty saw a mixed picture. For properties with fewer than five units, transactions have decreased 30%-50% since 2005, he said. That's because these buildings are typically owner-occupied, and as a result, considered residential. Financing for residential properties has become more restrictive, scaring off buyers, Vitalius says. Properties with five or more units, considered commercial investments, sold well last year. In 2008, demand for homes with five or more units will remain strong in Portland, particularly in the Munjoy Hill and West End neighborhoods.
Here are some highlights from the conference:
Industrial
Michael Miller, senior industrial specialist with NAI The Dunham Group in Portland, said the first six months of 2007 were the slowest in his 24 years as an industrial broker. "It was slow bordering on dismal," he says.
Miller cited a decrease in speculative development and a slowdown in new construction as building costs rose during the year. New construction also was impacted due to government regulations like the Maine Department of Environmental Protection's new rules governing vernal pools, which restricted the use of some previously available properties.
As a result, prices for existing properties stalled, land prices were flat and speculative development ceased during 2007. What's more, sale and lease prices were flat for the first time in a decade.
But when the calendar turned to 2008, it was as if "someone flipped a switch," says Miller, who expects a stronger market this year. Lower interest rates will make owning property more attractive than leasing, and a relatively small supply will mean heavy demand ˆ and higher prices ˆ for available properties. Miller expects prices in the industrial rental market to be stagnant because of a large inventory of lease space, and advises landlords to make an extra effort to retain tenants.
Commercial
In the Portland region, the office market increased by about 240,000 sq. ft. in the last year, either through vacancies or new construction. Of that amount, tenants occupied about 200,000 sq. ft., said Drew Sigfridson, a broker with CB Richard Ellis/The Boulos Co. in Portland.
Most of that space was occupied by the following: CIEE, which purchased a 61,129-square-foot office condo at a new office building at 300 Fore St. in Portland; Woodard & Curran, which leased 24,000 sq. ft. at 41 Hutchins Dr.; and Gorham Savings Bank, which leased 34,000 sq. ft. at 63 Marginal Way.
Of the nearly 11 million sq. ft. in the region's office market overall, about 6.21% is vacant, a 0.23% increase over 2006, Sigfridson said. The figure rose mostly because Anthem Blue Cross & Blue Shield last June moved its Portland operation to South Portland, vacating an 85,000-square-foot office at 110 Free St.
In 2008, Sigfridson predicts increasing demand for office space on the Portland peninsula. But the market still will be uncertain, so he expects developers to forgo new construction for more cost-effective renovation projects.
Meanwhile, the office vacancy rate in Lewiston-Auburn remained steady from 2006 to 2007, at 12.2%, said Daren Hebold, a broker at Ram Harnden Commercial Real Estate Services.
The rate stayed the same because small tenants, those occupying less than 4,000 sq. ft., were essentially trading offices, or "playing musical chairs," as Hebold put it.
Retail
The overall retail vacancy rate in the Portland region rose to 5.6% in 2007, the highest since 2003, said Dale Holman of Malone Commercial Brokers. For some brokers at the firm, he said, summer 2007 was the worst of the last 20 years, thanks to a weak national economy.
But even in this weak market, developers plan to build more than 1 million sq. ft. of retail space in Greater Portland this year, mostly around the Gateway at Scarborough development anchored by retailer Cabela's. Holman called those plans "alarming," given the high retail vacancy rate and a tepid 1% sales growth at the Maine Mall from 2006 to 2007. Developers are hoping the cyclical retail market improves by the time construction is complete.
Leasing all that new space still may be difficult, Holman said, so developers are likely to adjust their plans. "I think there's going to be cutbacks, I really do," he said, speaking from his Portland office a few days after the conference. Tenants may back out on their own: Cracker Barrel, a Tennessee-based restaurant chain, opted out of the Cabela's development last November, unsure whether the investment would pay off, according to Holman.
Residential, single and multi-family
You've heard it before: The residential housing market plunged last year. Anne Weigel, a Realtor at Coldwell Banker Residential Brokerage in Portland, had numbers to back the claim. In Maine, home prices rose just 0.77% over the last year, according to early statistics from the Maine Real Estate Information System. By contrast, Maine's median home sales price rose about 9% from 2004 to 2005.
Wiegel predicts that home prices will bottom out by the second quarter of 2008. The Portland market, in particular, is likely to improve, thanks in part to the good press coverage in the last two years. Frommer's Travel Guides last year cited Portland as one of the world's top 12 travel destinations, Weigel notes.
In the multi-family home market, Brit Vitalius of Sullivan Multi-Family Realty saw a mixed picture. For properties with fewer than five units, transactions have decreased 30%-50% since 2005, he said. That's because these buildings are typically owner-occupied, and as a result, considered residential. Financing for residential properties has become more restrictive, scaring off buyers, Vitalius says. Properties with five or more units, considered commercial investments, sold well last year. In 2008, demand for homes with five or more units will remain strong in Portland, particularly in the Munjoy Hill and West End neighborhoods.
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