February 6, 2006
Lay of the land | Real estate experts offer forecasts for the year ahead
By Sean Donahue
On January 26, a standing-room-only crowd packed the ballroom at Holiday Inn by the Bay in Portland for the Maine Real Estate & Development Association's annual conference focused on the year ahead in Maine real estate. More than 450 attendees listened as a half-dozen speakers broke down the anticipated trends in industrial, office, residential, retail and hospitality real estate sectors. The following are highlights from the individual presentations.
Industrial
There were some bright spots last year in Maine's industrial real estate landscape, according to Greg Hastings of NAI The Dunham Group in Portland. The overall industrial market saw 10% building appreciation in 2005, while land prices posted price gains of 25%. Likewise, several notable properties found new owners or filled significant vacancies during the year, including the 101,000-square-foot Durastone facility in South Portland that was sold and is fully leased, and the 117,000-square-foot former Sebago Shoe facility in Gorham that also was sold.
New construction showed some spark last year, and at least 123,000 sq. ft. of pending construction projects remain for 2006. However, Hastings cautions that such activity ˆ along with several other 2005 trends ˆ might slow down this year. New construction and speculative building development likely will slow this year, due to the rising cost of construction materials. Instead, developers and building owners will focus on redevelopment of existing facilities.
Price appreciation for land is expected to continue, due to a lack of available properties for development, but Hastings sees factors that could slow industrial development during the year. The culprits: State, municipal and environmental restrictions on new construction that present burdens to developers, along with Maine's high workers' compensation rates and business equipment taxes.
Commercial
Total vacancy rates in the greater Portland office market rose 0.67% in 2005, to 7.63% ˆ the fifth consecutive year of rising vacancies. But that trend doesn't alarm presenter Tony McDonald of CB Richard Ellis/The Boulos Co. in Portland, who calls last year's rise "virtually statistically insignificant." That's because the city's direct vacancy rate of 5.04% ˆ not counting sublease space ˆ is still lower than the national average of 13.0%. Although more than 100,000 sq. ft. of office space remained vacant in downtown Portland in January, McDonald expects vacancy rates to come down in 2006, especially as a few pending large leases get announced in coming weeks.
Developers added 300,000 sq. ft. of new office space last year, but McDonald expects new construction to be limited in 2006. Because developers in the Portland area are unwilling to build purely speculative buildings, most new construction will be at least 75% pre-leased before any project moves ahead. "This is not a big risk-taking market," McDonald says.
Because of the long lead time for new construction and the limited vacancies in downtown Portland in particular, McDonald says that large companies needing more than 20,000 sq. ft. of space must start looking well in advance of any move.
Single-family residential and condominium
The residential real estate market continued to show growth in 2005, albeit at a slowing rate. Although a record total of 16,605 existing homes sold last year, according to Mary Griffith of Coldwell Banker Residential Brokerage in Portland, that number is only 1.4% higher than the 16,369 homes sold in 2004. By comparison, home sales grew 10% between 2003 and 2004. The median price for a single-family home in Maine rose 9.5% in 2005, to $191,000.
But the word of the year in residential real estate was certainly "condos." The number of condominiums sold in 2005 in Maine increased 13.7%, while the median price grew 3.1% to 195,000, surpassing the price of single-family homes. What's more, condo sales as percentage of overall single-family home sales grew 50% between 2001 and 2005, from eight percent of the market to 12%. Cumberland County accounted for the majority of condo sales during the past five years, with 3,092 sold, but York County was a close second at 2,843 condos sold.
With 700 new condo projects proposed or under development in Portland alone, key questions revolve around what the 2006 residential real estate market might bring. Griffith cites a National Association of Realtors' forecast that calls for "balance" to return to the housing market this year in the form of more normal (read: slower) rates of price appreciation. In Maine, that could mean a "modest slowdown" in home sales and price appreciation. Griffith projects sales will decline five percent, while prices will decline six percent from current levels.
Retail
Low vacancies and rising lease rates made for a strong year in the retail real estate market. Peter Harrington of Malone Commercial Brokers in Portland notes that vacancy rates remained under three percent in the greater Portland market, with lease rates in the Old Port area ranging from $20 to $40 per square foot. In the Maine Mall-area rates ranged from $25 to $35.
Looking ahead, Harrington expects vacancies to "creep up" slightly in early 2006, but sees trends indicating that the retail real estate market will remain strong. Continued development in the downtown Portland area ˆ including a new, 46,000-square-foot Whole Foods supermarket and condominium projects such as the Westin Hotel complex ˆ will continue to drive growth for retailers. Outside of downtown Portland, the landscape will be changed by the planned addition of 500,000 sq. ft. at the Scarborough Gallery, which includes a new Super Wal-Mart and a Lowes store. Despite the addition of that additional space, Harrington expects strong demand from retailers to pull vacancy rates down later in 2006. Looking ahead, though, he's uncertain about a key ingredient for this sector's continued growth: Shoppers. Beyond 2006, Harrington wonders whether consumers can "hold up" their end of the economy and keep the retail sector strong.
Hospitality
To understand trends in hospitality and tourism-related real estate, you have to look at visitor habits and other trends in Maine's tourism market. That's the approach in a presentation prepared for the conference by Robert Baldacci of Ocean Properties Ltd. based in Portsmouth, N.H. (Baldacci was unable to attend the conference due to the death of his brother Paul in late January.)
The southern Maine coast has the largest percentage of travelers who stay overnight ˆ 33% ˆ according to a 2003 survey. And with more than 20,000 available rooms, the southern coast has the most infrastructure to serve those overnight guests of Maine's eight distinct regions defined by the Maine Office of Tourism. By comparison, just 13% of visitors to the Kennebec and Moose River Valley region stayed overnight. That means other tourism destinations must both increase their marketing to attract overnight visitors and expand the types of properties available to serve them. For example, visitors to the downeast region tend to rent cottages or houses, but there is opportunity for hotel developers to increase their market share in the region.
On that front, Ocean Properties identified several significant developments around Maine, including the Westin Hotel and condominium project in Portland, an upscale resort in the Katahdin region (see, "Return of the grand hotel," page 26), and projects in Bath and Bangor.
Industrial
There were some bright spots last year in Maine's industrial real estate landscape, according to Greg Hastings of NAI The Dunham Group in Portland. The overall industrial market saw 10% building appreciation in 2005, while land prices posted price gains of 25%. Likewise, several notable properties found new owners or filled significant vacancies during the year, including the 101,000-square-foot Durastone facility in South Portland that was sold and is fully leased, and the 117,000-square-foot former Sebago Shoe facility in Gorham that also was sold.
New construction showed some spark last year, and at least 123,000 sq. ft. of pending construction projects remain for 2006. However, Hastings cautions that such activity ˆ along with several other 2005 trends ˆ might slow down this year. New construction and speculative building development likely will slow this year, due to the rising cost of construction materials. Instead, developers and building owners will focus on redevelopment of existing facilities.
Price appreciation for land is expected to continue, due to a lack of available properties for development, but Hastings sees factors that could slow industrial development during the year. The culprits: State, municipal and environmental restrictions on new construction that present burdens to developers, along with Maine's high workers' compensation rates and business equipment taxes.
Commercial
Total vacancy rates in the greater Portland office market rose 0.67% in 2005, to 7.63% ˆ the fifth consecutive year of rising vacancies. But that trend doesn't alarm presenter Tony McDonald of CB Richard Ellis/The Boulos Co. in Portland, who calls last year's rise "virtually statistically insignificant." That's because the city's direct vacancy rate of 5.04% ˆ not counting sublease space ˆ is still lower than the national average of 13.0%. Although more than 100,000 sq. ft. of office space remained vacant in downtown Portland in January, McDonald expects vacancy rates to come down in 2006, especially as a few pending large leases get announced in coming weeks.
Developers added 300,000 sq. ft. of new office space last year, but McDonald expects new construction to be limited in 2006. Because developers in the Portland area are unwilling to build purely speculative buildings, most new construction will be at least 75% pre-leased before any project moves ahead. "This is not a big risk-taking market," McDonald says.
Because of the long lead time for new construction and the limited vacancies in downtown Portland in particular, McDonald says that large companies needing more than 20,000 sq. ft. of space must start looking well in advance of any move.
Single-family residential and condominium
The residential real estate market continued to show growth in 2005, albeit at a slowing rate. Although a record total of 16,605 existing homes sold last year, according to Mary Griffith of Coldwell Banker Residential Brokerage in Portland, that number is only 1.4% higher than the 16,369 homes sold in 2004. By comparison, home sales grew 10% between 2003 and 2004. The median price for a single-family home in Maine rose 9.5% in 2005, to $191,000.
But the word of the year in residential real estate was certainly "condos." The number of condominiums sold in 2005 in Maine increased 13.7%, while the median price grew 3.1% to 195,000, surpassing the price of single-family homes. What's more, condo sales as percentage of overall single-family home sales grew 50% between 2001 and 2005, from eight percent of the market to 12%. Cumberland County accounted for the majority of condo sales during the past five years, with 3,092 sold, but York County was a close second at 2,843 condos sold.
With 700 new condo projects proposed or under development in Portland alone, key questions revolve around what the 2006 residential real estate market might bring. Griffith cites a National Association of Realtors' forecast that calls for "balance" to return to the housing market this year in the form of more normal (read: slower) rates of price appreciation. In Maine, that could mean a "modest slowdown" in home sales and price appreciation. Griffith projects sales will decline five percent, while prices will decline six percent from current levels.
Retail
Low vacancies and rising lease rates made for a strong year in the retail real estate market. Peter Harrington of Malone Commercial Brokers in Portland notes that vacancy rates remained under three percent in the greater Portland market, with lease rates in the Old Port area ranging from $20 to $40 per square foot. In the Maine Mall-area rates ranged from $25 to $35.
Looking ahead, Harrington expects vacancies to "creep up" slightly in early 2006, but sees trends indicating that the retail real estate market will remain strong. Continued development in the downtown Portland area ˆ including a new, 46,000-square-foot Whole Foods supermarket and condominium projects such as the Westin Hotel complex ˆ will continue to drive growth for retailers. Outside of downtown Portland, the landscape will be changed by the planned addition of 500,000 sq. ft. at the Scarborough Gallery, which includes a new Super Wal-Mart and a Lowes store. Despite the addition of that additional space, Harrington expects strong demand from retailers to pull vacancy rates down later in 2006. Looking ahead, though, he's uncertain about a key ingredient for this sector's continued growth: Shoppers. Beyond 2006, Harrington wonders whether consumers can "hold up" their end of the economy and keep the retail sector strong.
Hospitality
To understand trends in hospitality and tourism-related real estate, you have to look at visitor habits and other trends in Maine's tourism market. That's the approach in a presentation prepared for the conference by Robert Baldacci of Ocean Properties Ltd. based in Portsmouth, N.H. (Baldacci was unable to attend the conference due to the death of his brother Paul in late January.)
The southern Maine coast has the largest percentage of travelers who stay overnight ˆ 33% ˆ according to a 2003 survey. And with more than 20,000 available rooms, the southern coast has the most infrastructure to serve those overnight guests of Maine's eight distinct regions defined by the Maine Office of Tourism. By comparison, just 13% of visitors to the Kennebec and Moose River Valley region stayed overnight. That means other tourism destinations must both increase their marketing to attract overnight visitors and expand the types of properties available to serve them. For example, visitors to the downeast region tend to rent cottages or houses, but there is opportunity for hotel developers to increase their market share in the region.
On that front, Ocean Properties identified several significant developments around Maine, including the Westin Hotel and condominium project in Portland, an upscale resort in the Katahdin region (see, "Return of the grand hotel," page 26), and projects in Bath and Bangor.
Most Recent
Most Recent
Comments