Suburban office owners! Rents are not rising and vacancy rates are not falling. Sales are less than replacement cost in most cases. Capitalization rates have dropped slightly but this is no time to sit on your hands. Appeal your tax assessment.

In a recent survey just as many national investors called office building property a "buy" as those calling office a "hold" (44% each). This probably has a lot to do with the dichotomy of suburban office product versus central business district (CBD) office product. The difference between the two locations is a departure from previous recoveries, however. In the past, due to the desire for lower rents and shorter commutes the suburban office properties typically lead the office market coming out of recession.

Due to the large amount of vacant suburban office space at this time (70%) of total, suburban property is lagging CBD property this time around. With job creation continuing on a sluggish pace suburban office vacancies are stable to increasing, even as CBD properties are experiencing lower vacancy rates. Rents that were cut during the great recession don't stand much of a chance of rising in the suburbs until the job picture turns around and all that vacant space is absorbed.

National CBD office market overall capitalization rates declined during the most recent quarter over quarter comparisons (per PWC/Korpacz) to 7.53%. National suburban cap rates also declined to 8.17%. Atlanta office market cap rates declined slightly to 8.84% from 8.95% the previous quarter and 9.03% a year ago. Office leasing activity was up 27.5% over the first three quarters of 2010 versus the same period in 2009. Free rent is prevalent however, with up to 20 months free on a ten year lease. The outlook for rent levels remains negative for the near term.

The Atlanta office market vacancy rate was averaging approximately 10% in the fourth quarter. Tenant retention is averaging approximately 63% just slightly below the year ago 65%. Rents are flat to declining -0.25% while operating expenses are rising approximately 2.32%. The Wall Street Journal recently reported that the delinquency rate on commercial mortgage backed securities reached a record 9.39% in February and one of the largest jumps was office CMBS delinquencies which rose to 7.1% from 6.88%.

Leading, downtown, trophy office buildings are the only office properties selling for premium prices and suburban office is lagging. Continued pressure on rents coupled with high vacancy rates will continue to adversely affect pricing. Overall Atlanta office properties are selling for 50% to 100% of replacement cost with an average price of 80% of replacement cost. 2011 is a good time to appeal your property tax assessment.

By ELIOT BROWN

The delinquency rate for commercial mortgage-backed securities reached record levels in February, as commercial real-estate deals made in the market's peak continue to struggle despite rising values in some parts of the country.

Commercial Vacancy Rates to Decline
A stabilization trend is taking place in commercial real estate sectors, but in most markets rent will remain soft except for multifamily rentals, according to the National Association of REALTORS.

Lawrence Yun, NAR chief economist, said a pullback in construction is helping stabilize the market. “Very limited construction of new commercial real estate over the past few years has essentially fixed the supply of available space,” he said. “This means vacancy rates could fall quickly from any increase in demand for commercial space.”

From the first quarter of this year to the first quarter of 2012, NAR expects vacancy rates to decline 0.5 percentage point in the office sector, 1.3 points in industrial real estate, 0.1 point in the retail sector and 0.9 percentage point in the multifamily rental market.

“Even with declining vacancy rates, rents are not likely to turn positive in most markets until next year, outside of multifamily rental properties,” Yun said. For example, office rents are forecast to fall 1.8 percent this year before turning higher by 4.0 percent in 2012...
http://www.realtor.org/rmodaily.nsf/pages/News2011022803

RISMEDIA, February 28, 2011—(MCT)—Sales of new U.S. homes fell in January 2011, almost completely retracing the strong gain seen in December, the Commerce Department recently estimated.

Suburban Office Markets Trail Downtown Rivals

By A.D. PRUITT

Continuing on with the series of posts about SB 346 and changes to Georgia property tax law, here are a few miscellaneous items.

All assessment notices state-wide will all be on a uniform notice called PT 306 by the Department of Revenue. There will also be a uniform appeal form called PT 311 by the revenuers, but it is not mandatory that you use this appeal format. I have not found any links to these forms available for general consumption so I think they are still being finalized.

It used to be that only the owner on January 1 could appeal for that tax year. Now, whoever is the owner as of the last date to appeal is able to appeal the assessment.

If you are not satisfied with the result of your appeal to the Board of Tax Assessors, you can still appeal to the Board of Equalization, Arbitration, or a new Hearing Officer. The Hearing Officer will hear arguments on value and uniformity for non-homestead (not owner-occupied and receiving an exemption) properties with values greater than $1 million.

At any time during the appeal process (prior to circuit court) if you get a written value agreement signed with the assessors it will be subject to 299C of the tax code which means that if you don't sell the property or change it in any way the value will be kept (frozen) for three years.

Happy Hunting