The 2010 Tarrant County commercial real estate market looks to be similar to 2009 with one big difference according to local foreclosure expert George Roddy Sr.: a ‘closing window of opportunity.’
Roddy, president of Addison-based Foreclosure Listing Service Inc., said his company is predicting a yet-to-come storm of commercial foreclosures in Tarrant County, but those foreclosures will mean investment opportunities.
“We think ’09 was a dud market and 2010 will be close to being the same as ’09 … but by the end of the third quarter, the fourth quarter of this year, you’re going to see an increase of [investors] in the market and from our vantage point, the window of opportunity – believe it or not – is beginning to close,” Roddy said at a March 24 Society of Commercial Realtors breakfast. “The smart money is out there today taking advantage of the negative publicity commercial real estate is getting.”
For all of 2009, Roddy said overall commercial property sales in Tarrant County were down 44 percent compared with sales seen in 2008 – a telling number, he said, and the lowest number of commercial property sales in the last 20 years for the county. The numbers exclude foreclosure sales.
“This is the most important number in the viability and health of a local commercial market,” he said.
At the peak of the commercial property sale market in Tarrant County, which was 2007, Roddy said there were 2,405 sales transactions. In 2008, that number dropped to 1,958 commercial properties sold, and in 2009, 1,097 commercial properties changed hands in Tarrant County.
And though the most recent numbers are low, Roddy said the number of sales made during the 2007 peak of the market are the most concerning.
“Lots of sales means lots of loans and many of these were five-year balloons,” he said, adding that the high number of sales in 2005 to 2007 will have loans maturing from 2010 to 2012 and with the current state of the financial system – and several banks’ unwillingness to extend loans – that means higher levels of foreclosures.
“Loans will come due and because of the tightness of the financial market, they won’t be refinanced,” he said. “…We feel 2010 is basically going to be the peak of commercial real estate foreclosures because of the numbers of sales five years ago … and until we see a change in monetary policy, a freeing up in the financing, we’re going to continue to see the same thing at least for the next two years.”
Roddy said there has been some shaking out in the local industry of underperforming properties and that will continue.
“The very fact that we’re seeing a thrashing out of properties is – believe it or not – a good thing,” Roddy said. “There are and will continue to be properties not making money and they will end up on the foreclosure block.”
But, he said, that’s not all bad news – except for the developers of the foreclosed properties.
“You buy real estate when there’s blood in the streets,” he said. “So, always, in any market, there is somebody out there with money willing to take a chance.”
Office
Roddy reported Tarrant County office occupancy was down 2 percent for 2009 compared with 2008 – which was not as bad of a drop as the county could have seen considering the current market conditions, he said.
Absorption, however, was down 145 percent in the local office market, but Roddy said this was because of the extraordinarily high numbers seen in 2005 to 2007. Even so, rents increased slightly by 1 percent on average to $20.82 per square foot, Roddy said, including all classes of properties. The total negative absorption for Tarrant office space in 2009 was 230,000 square feet.
Roddy said the Tarrant office market, however, saw a 121 percent increase in foreclosure postings from 2008 to 2009 – the biggest gain in foreclosures of any commercial real estate sector.
Retail
Tarrant County retail center occupancy in 2009 was down a tick by 1 percent when compared with 2008 occupancy, Roddy said, with a total of negative 114,000 square feet of space absorbed for the year.
Roddy said like office space, though, Tarrant County retail rental rates outperformed with only a 4 cent difference of $15.92 on average seen in 2009 versus $15.96 on average seen in 2008.
Still, the Tarrant retail market saw a 90 percent increase in foreclosure postings in 2009 compared with 2008.
“With the amount of retail space coming on the market and under construction, the fact that rental rates are even is a credit to the market we live in,” he said.
Industrial
Tarrant County industrial space took a slight dip in 2009 with occupancy down 2 percent for the year compared with 2008. Absorption for this sector, however, was down 154 percent for 2009 and the year ended with negative 2 million square feet absorption, according to FLS. Roddy attributed the high negative number to several new projects coming on line last year.
But like the other sectors, Roddy said rents for Tarrant industrial space was up 2 percent in 2009 compared with 2008 at $3.85 on average per square foot in 2009 compared with $3.78 on average per square foot in 2008.
“Again, the rents held steady or increased some,” he said.
And outperforming other sectors, the industrial market saw only a 10 percent rise in foreclosure postings in 2009 compared with 2008, Roddy said.
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