The State of Real Estate
As the year of 2011 progresses, commercial real estate professionals say they are seeing positive activity, and there are some signs of health in the residential housing market.
Steve Koewler, president of Columbia’s Miller-Valentine Group, which deals with commercial property, says he sees good signs, but he is cautious.
“We’re seeing an up-tick. The segments of industrial, medical and retail are showing some movement, and multi-family is showing an increase,” Koewler says.
He says that the trend upward in the demand for industrial space is related to increased consumer activity. “Inventories are being replenished so there is a need for more space,” he says.
David Lockwood, senior vice president for Columbia’s Colliers International, is optimistic, too. He sees the demand for industrial space growing. “The Midlands region continues to be a target for large distribution firms. The recent addition of the Home Depot Distribution Center, at 465,000 square-feet, and the 1 million-square-foot Amazon.com distribution center in Lexington County demonstrates the attractiveness of our market to this type of operation,” he says.
While increases in industrial building are connected to activity, Koewler says the reason for an increase in the building of medical facilities has more to do with an aging population and specialty care housing. “It’s driven by the needs of an aging population. People are getting older and living longer.”
Bruce Harper, NAI Avant president and broker-in-charge, and Todd Avant, CEO, both say they have seen sizable jumps in the demand for commercial property, including medical facilities.
Some of the Miller-Valentine projects getting attention are mixed-use developments in Columbia’s popular Vista section, where the company has recently added 18,000-square-feet of retail and office space. The office space is housing Miller-Valentine at the old Columbia Supply site. There is also a Jason’s Deli there, and a little of the developed space is still available. Koewler says a limited-service hotel could be coming to the lot adjacent to the site that has been developed.
Lockwood says the initiative of property owners has helped motivate the market.
“The commercial real estate market has made significant strides toward recovery in the past twelve months. From an office standpoint, the downtown (Columbia) market is the strongest due to significant investments many landlords have made to provide quality space for their tenants and the fact that downtown rental rates eroded during the recession to fall more in line with suburban rates,” Lockwood says. “More tenants are looking for longer-term, high-quality space.”
Lockwood says retail is showing some signs of life, too.
“The retail market was greatly impacted during the last economic downturn but is now on an upward trend. Many big boxes that were vacated during the recession have been re-tenanted with (and created opportunities for) non-traditional users,” Lockwood says. He uses examples of the Village at Sandhills, East Pointe Plaza, Northeast Columbia and other large spaces.
Overall, the news is good. Harper says indications are that the future of commercial real estate is good. “We bottomed out in 2009,” Harper says. And things have been more positive since. “In 2010, we saw it moving in the right direction.” He says there was probably a 40 percent increase in brokered property from 2009 to 2010, and numbers are looking good in 2011. Harper says the trend for 2011 is 10-to-15 percent more activity than 2010, with an even larger percentage increase on deals that are scheduled to be closed (in the pipeline).
Avant says that a lot of activity in the commercial real estate that has been motivated by incentives from owners may be ending. “The window of opportunity is starting to close,” Avant says. He says landlords who were making concessions may be less likely to do so as inventories decrease. Both Harper and Avant anticipate medical, multi-family and student housing being strong sectors.
Even with some optimism in the air, Koewler says some developers are still cautious because financing is more difficult to get in the wake of the banking crisis. He says there is a lot of debt on commercial real estate coming due in the next three years. If there are a high number of bank foreclosures, it hurts the value of existing commercial real estate.
RESIDENTIAL REAL ESTATE
The residential real estate market is still dealing with the repercussions of the bubble that burst in the industry three years ago.
Wade McGuinn of McGuinn Homes is the president of the Home Builders Association of Greater Columbia. He says that the negative national news showing a poor market and lower prices does not necessarily apply to the Midlands and South Carolina. He says he is seeing some up-tick in prices. He also advised not to compare sales with mid-years of the decade.
“If you want to see what a normal market is, you can look at it before the market began growing, before the bubble of 2007,” says McGuinn. He says the average number of building permits for residential in 2002 was about 3,000. But as the market grew, the number of permits being issued doubled to 6,000 in 2007. “Based on that, you could say we are closer to normal now,” says McGuinn, who adds that the average number of residential building permits being issued now is about 3,000 per year.
A bigger challenge in the residential market, according to McGuinn, is in the lending market. He says banks are requiring higher credit scores and more money down, a trend that runs opposite of practices in the middle of the decade. McGuinn says the good news is that qualified buyers have a lot of factors in their favor.
“Interest rates are low, and homes are more affordable,” says McGuinn. “The cost of new construction, which includes the cost of labor and materials, is at a 20-year low.” He says there is as much buying power as there was in the post-World War II era which is when the middle-class was built. “Buyers are definitely in the catbird’s seat,” McGuinn says.
The residential market has an influence on commercial real estate. Koewler says the transformation in the single-family housing market has helped the commercial market. “There is a decline in the ability to buy homes. You need a higher credit score to get a home now than you did five years ago. Fewer people qualify for mortgages. Lending regulations have been tightened, too. That results in a higher demand for additional rental units and multi-family construction,” says Koewler.
In the first quarter of 2011, the house-buying market in South Carolina was anemic compared to numbers from the year before, according to statistics from the S.C. Association of Realtors.
According to the report, tax credits helped boost numbers in 2010. Tighter regulations for borrowers is another factor slowing sales, according to Tony Thompson, vice president of the Home Builders Association of Greater Columbia.
In the Greater Columbia area 1,813 homes had sold by the end of April 2011. In the same period of 2010, 2,269 had sold. In the Greater Greenville area 1,939 houses had sold by April 2011, compared to 2,232 that had sold for the first quarter of 2010. In the Greater Pee Dee section of the state, 111 units had sold by the end of April 2011, compared to 180 that had sold in the same period a year earlier.
The median price of homes in those three areas was down slightly, too, according to the SCAR data. In Columbia, the median home price was 137,000 in the first quarter of 2010 compared to 136,000 in 2011. Median price in Greater Greenville was $133,000 in the first quarter of 2011 compared to $136,950 in 2010. In the Greater Pee Dee, the median price was $114,500 in the first four months of 2011 and $118,000 for the same period a year earlier.
The number of days on the market was longer in 2011 compared to 2010 in the first quarter. In Columbia, days on the market increased from 103 to 120; in Greenville from 108 to 118; and in the Pee Dee from 110 to 126.
The report also showed that from May 2010 to April 2011, pending home sales in South Carolina were down 15 percent.
The segment that sold the quickest was the $100,000 and below range at 126 days. The slowest was the $300,001-plus range at 187 days.