ROOMS TO LET: VACANCY RATES IN SECONDARY MARKETS
Of the secondary markets — those with a population below 2 million — tracked by Marcus & Millichap, vacancy rates are just one indication of market potential for multifamily investment. Other factors to consider include employment growth and household formation. For example, New Haven's economic woes could be a more important factor than the apparent high demand for apartments.
| Metro Area | Vacancy Rate |
|---|---|
| New Haven, Conn. | 3.7% |
| Cincinnati | 4.5% |
| Sacramento, Calif. | 4.6% |
| Fort Lauderdale | 5.0% |
| San Antonio, Texas | 6.1% |
| Salt Lake City | 6.2% |
| Portland, Ore. | 6.5% |
| Columbus, Ohio | 6.8% |
| San Jose, Calif. | 7.5% |
| Milwaukee | 7.6% |
| Las Vegas | 7.6% |
| National | 6.5% |
| Source: Marcus & Millichap | |
Insight from: demographics
EDUCATED WORKERS
Corporations routinely list a number of site-selection criteria when choosing to either expand or relocate. In any metropolitan area, the percentage of residents who have attained a college degree is a major factor. Of the 15 largest metro areas, San Francisco currently boasts the highest percentage of residents age 25 or older with a bachelor's degree or higher — 37.3%. Statistics for Atlanta and St. Louis are based on the metropolitan statistical area (MSA), while the remaining markets listed here are consolidated metropolitan statistical areas (CMSAs), defined as regions comprised of more than one MSA.
| City | Adults age 25+ who possess college degrees |
|---|---|
| San Francisco | 37.3% |
| Washington, D.C./Baltimore | 37.2% |
| Boston | 34.4% |
| New York | 32.6% |
| Atlanta | 31.4% |
| Chicago | 30.7% |
| Dallas/Fort Worth | 30.7% |
| Cleveland | 28.7% |
| Philadelphia | 27.8% |
| Detroit | 26.2% |
| Houston | 25.7% |
| Los Angeles | 25.6% |
| Miami/Fort Lauderdale | 25.1% |
| St. Louis | 24.5% |
| Pittsburgh | 24.2% |
| *Markets are the top 15 most populous metro areas, according to the 2000 U.S. Census. | |
| Source: U.S. Census Bureau 2000 Current Population Survey | |
WHICH OFFICE MARKETS ARE OVERBUILT?
In six U.S. office markets, the addition of new office space has outpaced growth in employment — producing an excess inventory of available space. The worst offender is Atlanta, where the number of jobs grew by a healthy 14.6%. However, new development produced a 31.2% increase in office space. Markets are ranked from the most overbuilt to the least overbuilt.
| Market | Office Employment Growth* | Office Inventory Growth | Difference |
|---|---|---|---|
| Atlanta | 14.6% | 31.2% | -16.6% |
| Denver | 13.2% | 22.6% | -9.4% |
| Seattle/Puget Sound | 15.1% | 20.3% | -5.2% |
| Boston | 7.8% | 11.6% | -3.8% |
| Chicago | 7.7% | 9.5% | -1.8% |
| Dallas/Fort Worth | 19.3% | 19.8% | -0.5% |
| Los Angeles | 6.1% | 4.1% | 2.0% |
| South Florida | 15.9% | 12.3% | 3.6% |
| Washington, D.C. | 20.3% | 15.7% | 4.6% |
| New York City | 8.2% | 1.8% | 6.4% |
| *Based on growth in financial, insurance, real estate and services industries since 1995. | |||
| Source: CoStar Group | |||
THE REALLY HIGH RENT DISTRICT
New York City's Fifth Avenue — arguably the most prestigious stretch of retail real estate in the world — ranked as the most expensive shop space in the summer of 2002. The area boasted asking rental rates of $922 per sq. ft., while Los Angeles' Rodeo Drive followed at a distant second at $240 per sq. ft. Bob Bach, director of research for Grubb & Ellis, says the high density of pedestrian traffic is one of the main reasons Fifth Avenue garners higher rents than any of its competitors.
| Market | Top Location | Rental Rate (per sq. ft.)* |
|---|---|---|
| New York City | Fifth Avenue | $922 |
| Los Angeles | Rodeo Drive | $240 |
| Chicago | Michigan Avenue | $225 |
| Boston | Newbury Street | $150 |
| San Francisco | Union Square | $144 |
| Honolulu | Kalakaua Avenue | $78 |
| Seattle | Olive to University | $70 |
| Miami | South Beach | $65 |
| San Jose | Valley Fair, Santana Row | $60 |
| Washington D.C. | Connecticut Avenue | $50 |
| *Rates are asking rents on an annual, triple-net basis. | ||
| Source: Grubb & Ellis | ||
A CAPITAL EXPANSION
The total outstanding balance in the commercial mortgage market has mushroomed by 80% over the last seven years and is nearly $1.5 trillion. Although commercial banks are still by far the dominant capital source, the growth of CMBS is striking. In 1995, CMBS accounted for $41.9 billion, or 5%, of the total outstanding balance. By first-quarter 2002, CMBS had mushroomed to $239.7 billion, or 16%, of the total outstanding balance. The market share for savings institutions actually fell from 14% to 10% during the same period.