New Orleans' CityBusiness magazine interviews Robert Hand, President, Louisiana Commercial Realty, on New Orleans' commercial real estate. New trends show there is some speculation in buying of commercial properties that have been on the market much longer than the average property. This is a classic sign of a healthy commercial real estate market. here is the text of the article.
"Office and retail space in the New Orleans region is moving with increased frequency, and many of the properties changing hands through sales and leases have lingered on the market for extended periods of time, according to data from Louisiana Commercial Realty. That suggests deep-pocketed speculators and other investors are diving into the distressed property market, which Louisiana Commercial Realty owner Robert Hand considers a healthy sign for the local economy. He dissected the data in a November 16 conversation with CityBusiness.
Can speculation be a problem if it’s just speculation only? It’s a healthy sign. What I am deducing is that these properties these are not loved because they have been on the market almost twice as long as normal . They are usually blighted properties that require lots of attention. Maybe they are in a tough neighborhood.
But buyers recently have come along and decided to speculate and buy these things that previously were difficult properties. If they weren’t difficult properties, they wouldn’t have been on the market for very long. We can rule out whether they were on the market an extraordinary long time due to being overpriced because on average they were sold near the average price for properties over the last 12 months — that shows a healthy commercial market. It shows a healthier economy.
The asking office lease rate is dropping. Are lease rates simply dropping enough that they are stimulating movement? The properties that sold or leased were transacted at 15 percent below the list price, which is about average of what we’ve seen the last 12 months. The only unusual thing is office properties leased or sold recently were also on the market a lot longer than normal.
If you look at the asking lease price, it was $16.74 versus the last 12 months at $17.39. So of the properties that were leased or sold, it doesn’t appear they were overpriced. The lease and the asking price were both under the average.
Retail listings are up, as are days on the market for those sold or leased. Does this mean that space not previously in demand is moving because retail is expanding? People want the low-hanging fruit first. When property on the market for a long time finally starts being leased or sold, it means that speculators are coming into the market. That’s really a healthy sign.
Buyers are now more willing to take risks. Normally the banks won’t loan money for speculation. This tells us probably the buyers might have deeper pockets with more equity. They are willing to buy those difficult, unloved, properties that up until now they weren’t.
Industrial property listings are increasing. Is it a buyer’s or seller’s market in the industrial sector? I still think it’s a buyer’s market in the industrial sector because you still have a lot of what I call elasticity, which is, of the additional supply that comes on the market, how does that affect price? What we are seeing is people looking to buy and lease is still pretty price sensitive.
The average property leased in the industrial sector leased for $4.59 a square foot, which is down almost 50 percent from the 12-month average, which was $6.18 a square foot. Some of that depends on the area. Elmwood is $6, Mid-City is $4.50 and New Orleans East is $2.50. But on average what we saw recently was industrial properties that were leased at prices below the last 12 months which is a buyer's market.
There’s more vacant land available, both in the number of listings and millions of square feet. The days on the market are much fewer. What does that tell us? It’s not really a seller’s market because the prices are not higher than normal. Of the properties that were sold, they were sold 24 percent below the list price. Sometimes it’s just because land is hard to value sellers price land too high.
It really depends on what you are going to use it for. You can have somebody that is going to put it in the gas station that makes it highly profitable, and they are willing to pay more for it than someone who is going to put in a parking lot which is less profitable."