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Market News and Trends

Austin Commercial Real Estate On The Way To Recovery


There was an interesting series of articles over the past week or so —
a “series” only because they all relate to commercial real estate in
Austin.  I don’t comment often on the commercial world, but
these pieces seem almost designed to make an important point:  

MARKETS WORK!

First, without comment, here are the articles:

Austin American-Statesman, 12/28/09:  Commercial real estate foreclosures more than double in Austin area

Austin Business Journal, 01/04/10:  Austin ranked best city to invest in commercial real estate

Austin American-Statesman, 01/05/10:  Austin-area office market struggles

Austin Business Journal, 01/05/10:  Hanger Orthopedics negotiates 75,000 square foot North Austin lease

The first piece (Commercial real estate foreclosures …) comments:   

“George Roddy Sr., president of Foreclosure Listing Service, said he expects commercial foreclosures to remain at the current level — or perhaps higher — throughout 2010.  He added that the numbers do not mean necessarily that the commercial property market is in a dire situation.  ‘Residential foreclosure postings have been at the high-end of the foreclosure cycle for some time now, and the commercial market generally follows behind residential,’ he wrote in a statement.”

Next, consider the point of the second article (Austin ranked best …):  

“Because commercial real estate lags the labor market, it still has a ways to go before reaching its own low point,” said Bob Bach, Grubb & Ellis senior vice president and chief economist.  “The good news is that the freefall we saw in 2009 is over and the future is more certain, giving owners and users of real estate the confidence to begin making decisions again.”

Then the third article (Austin-area office market …):  

“Office leasing is usually tied to job growth, and the Central Texas region lost 4,300 jobs during the 12 months that ended in November.” 
I have blogged on this subject over the past several weeks.  (See Good news, but you can’t tell it! and Texas and Austin Stronger than most of U.S.)    While year-to-year comparisons are useful, it is worthwhile to look are recent trends as well, and it is a fact that the Austin metro area has been adding jobs in recent months.  It is also true that much more growth is needed before the market will absorb existing commercial space, but investors won’t wait until after the market fully recovers to put their money to work.

And new demand for large commercial leases will affect property values in the future.   That’s why the fourth article (Hanger Orthopedics …) is important. Hanger has not made a commitment, and no lease has been signed, but the fact that Hanger is having serious discussions is a vote of confidence in Austin and our ability to deliver a skilled workforce and an attractive place to live — the things that have allowed our local economy to thrive over the past 15 years or so.  I have blogged frequently about other indications of Austin’s economic strength relative to most other U.S. metropolitan areas.

So … the short version:

  • Market forces — in this case the “Great Recession” — cause economic stress, depressing employment and therefore demand for office and other commercial real estate;
  • Savvy investors recognize that “buy low” is not just an adage.  “Down” markets are when investors get into the market.  
  • The market cycle recovers, carrying increased employment and property values with it.
  • Successful investors profit from their foresight and their willingness to bet on the future.

Among many lessons to be learned from the past couple of years is that the reward of investing must not be “de-coupled” from the risk.   Creative mortgage-related investment instruments allowed originators of “sub-prime” mortgages to reduce or eliminate the risk of default by poorly qualified borrowers, so they kept making high-risk loans.  In the process of stepping in with “bail-out” and “stimulus” spending, government has done it again, by telling some companies that they are “too big to fail.”  In that world, executives have incentive to maximize profits without regard to risk because they know that somebody else will protect them from the downside.   Without debating the wisdom of one fiscal policy versus another, it is clear that in both of these situations business executives were acting rationally based on their own views of market reality.

This is NOT an argument for regulating risk-taking behavior, except in ways that keep risk and reward known, visible, and closely coupled.   Some investors will bet correctly.  Some won’t.   Where one investor falters, another sees opportunity.  That’s the way the business world is supposed to work.  We see it in action now in Austin, and I hope we’ll allow the local market to function naturally — win or lose.  I believe we’ll win because I have confidence in Austin.

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About Bill Morris, Realtor

More than thirty years of business experience (high tech, client service, business organization and start-up, including many years in real estate) tell me that service is the key to success and I look forward to serving you. I represent both buyers and sellers throughout the Austin metropolitan area, which means first-hand market knowledge is brought to bear on serving your needs: -- Seller Representation is a comprehensive process that begins with thorough market analysis and consultation, continues with properly staging the home to achieve the highest price possible in a reasonable time on market, a complete program of marketing and promotion, ongoing updates and communication, closing coordination, and follow-up throughout (and after) the sale. -- Buyer Representation is also full service: shopping, previewing, price and market consultation, contracting, negotiating, coordination of inspections, appraisals, repairs, and closing details, and follow-up beyond the closing of your purchase to ensure your lasting satisfaction. Because the real estate industry is becoming more sophisticated and challenging every day, you need a professional that understands the industry and is positioned to stay ahead of the game. I go the extra mile to help you achieve your goals. That's why I constantly research the market and property values so your home is priced effectively from day one. I also make sure the public knows your home is for sale by using innovative advertising and marketing techniques to attract potential buyers.

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