Posted 11/12/2012 12:00 am
Jeff Yates is a certified leasing specialist with Irwin Partners, a commercial real estate investment, brokerage and development firm.
Background: Yates grew up in Prairie Grove (Washington County) and graduated with a bachelor’s degree in finance and real estate after attending the University of Arkansas at Fayetteville and at Little Rock.
Career: Yates’ practice focuses on retail and office, especially in leasing and in commercial real estate investment counseling. He is the Oklahoma/Arkansas state director for the International Council of Shopping Centers, member of the board of the Little Rock Realtors Association and treasurer of the Building Owners & Managers Association of Greater Little Rock.
Q: Is it still a renter’s market? What are prospective tenants asking for?
A: Yes, in the Little Rock Metro, it is a renter’s market in all product types — but more in some types and some markets than in others. Existing tenants have been negotiating for reduced rent and to reduce the leased area. The buzzword of “rightsizing” has gotten a lot of use. Prospective tenants are seeking reduced rates, limited lease term with options and improvements/renovations by landlords. When those renovations are not provided, prospective tenants are seeking even larger rental discounts. Landlords are seeing lower rents and rising operating costs. Properties recently acquired from lenders at deep discounts to construction costs are contributing to a soft market for lease rates.
Which sector has fared best since the financial crisis of 2008, office, retail or industrial?
In other words, what sectors of the commercial real estate market are hot? Which ones are not? In the central Arkansas markets, office, retail and industrial properties have all rebounded substantially. Retail is leading the three occupancy-wise, with a current vacancy level in this market of less than 8 percent. Supply of existing product is limited, making it difficult for some retailers to expand into the market. Retail market rents are increasing and may be approaching the tipping point to attract new development. Office and industrial vacancy are both around 12 percent in central Arkansas. That translates into 2 million SF of available office space and more than 6 million SF of available industrial space. Both product types have improved, but opportunities for tenants are still plentiful.
How has commercial real estate investing changed during the past four years?
Capital has become more risk averse. Lending institutions have shown some discipline by requiring increased underwriting requirements, more conservative loan terms and conditions, and greater borrower requirements. Some commercial real estate owned by lenders has sold at significant discounts and created downward pressure on investors’ expectations of pricing. REITS, institutional and other large investors seem to have been best positioned to restructure debt and take advantage of market softness to expand inventories. Smaller investors and especially developers have experienced pressure from the market and debt structures.
What is the current “normal” in commercial real estate and where is it headed?
The current cycle of commercial real estate is risk averse, demanding of stable returns and seeking stability and consistency in markets, tax policy, lending policies and overall government policies. There is substantial capital available for investment in commercial real estate. So much institutional and corporate capital is waiting for stability that when the consensus is reached that the market is ready, there may be more broad upward price pressure across asset types and classes due to demand for product exceeding available supply.