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Reasons for Cautious Optimism This Year

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After about four years of mostly gloom and doom, there is credible reason to believe that South Florida’s commercial real estate market is turning the corner. Notwithstanding the importance of objective market studies and industry analytics, I base my assessment of the market on what I see and hear every day, and I see my clients with many exciting deals in the pipeline. The following observations shape my view of how 2012 is unfolding.

Strong demand for Class A properties: This year as gotten underway with robust demand for Class A properties in the industrial, multifamily and downtown office sectors. Dade County, in particular, is benefiting from its growth as a true international hub, including excitement around the Port of Miami expansion. Some spill-over of related demand continues to benefit southern and central Broward County, but northern Broward is still lagging. Throughout the tri-county area, vacancy rates are higher for B and C-rated properties, but I expect to see them start to fill up as Class A availability is absorbed. Reduced rents are motivating some tenants to move into newer, higher-quality space. The multifamily sector continues to be strong with 60,000 new units planned; however, the market for multifamily properties likely will be saturated by 2013.

Leasing rebounds: Leasing activity is picking up thanks to pent-up demand, with tenants realizing that rates for Class A properties in downtown areas have gotten as low as they are going to go. Landlords have made significant concessions over the past four years in order to retain existing tenants and attract new ones. In contrast to the one-year renewals we have been seeing, tenants are no longer postponing long-term commitments in the hope of continuing downward pressure on rents. With many corporations reporting healthy balance sheets and consumer demand trending slightly upward, market fundamentals suggest reason to be cautiously optimistic about leasing activity in the coming year.

Fewer receiverships: Traditional brokerage business, leasing and investment sales came back in 2011, providing a more sustainable environment than distressed sales and receiverships. The number of receiverships declined as the economy inched slightly upward and many good land deals – not distressed properties – went under contract for the first time in three or four years and are scheduled to close in the first half of 2012. Strong properties with competent operators are attractive to buyers, as these properties have largely been victims of lower rates and not necessarily lower occupancy.
Last year, 95 percent of deals my company closed were for cash, but I expect to see more deals financed this year. Access to financing for solid investments has improved, despite financial industry concern over continued high unemployment, the international debt crisis and the unknown outcome of the next U.S. presidential election.

The last six months of 2011 were like a slack tide, or a short period of time in which a body of water experiences no rise or fall of the tide and no movement in either direction before the direction of the tidal stream reverses. In my opinion, the slow reversal we experienced bodes well for commercial real estate this year.

By Lloyd Berger
President, Berger Commercial Realty Corp.

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