More Evidence of a Coming Commercial Real Estate Collapse
Office
NYC has 13M SF office under construction and only 34% preleased
LA has 4M SF office under construction and only 20% preleased
ATL has 3.2M SF office under construction and only 9% preleased
Long Island has 1.6M SF office under construction and only 6% preleased
Nationwide, YTD there has been -15M SF of Class A office absorption. That is 15M SF of Class A office space that has gone vacant. -3.6M of that negative absorption has been in NYC, -2.7M in Chicago, and -2.6M in LA.
For total office space (Class A, B, & C), YTD there has been -43.5M SF of absorption. -6.5M in Chicago, -4.8M in NYC, -1.6M in Atlanta.
We haven't had negative absorption in office space for a year since 2001 when it was -74M for the year. We are well on pace to hit -80M or more of negative absorption.
The current vacancy rate is 12.9%, which is the highest since 2002. It is going higher by the end of the year, maybe close to 14%.
Sales volume of office buildings has almost come to a complete halt. There has been less than $5 billion in total office sales this year; in 2007, there was close to $100 billion in sales.
Industrial
Phoenix has 2.3M SF industrial under construction and only 15% preleased
Inland Empire in California has 1M SF industrial under construction and only 5% preleased.
The somewhat good news is that industrial property construction has almost completely ground to a halt nationwide. This could be good or bad depending upon your perspective. For the health of the industry and considering the oversupply, this is good.
There have been less than 10M SF of industrial construction starts this year; compared to 2007 when there was 170M SF of industrial construction starts.
Atlanta had the second worst absorption in flex buildings with -1M in negative absorption.
There have been a total of -110M negative absorption YTD in all industrial properties nationwide. This number is complete unprecedented in the past 10 years; the only time we have had negative absorption in industrial in the past 10 years was -1M in 2002. Think about what this says about manufacturing and distribution of global goods here in the US.
Sales volume of industrial buildings has been less than $5 billion this year compared to $30-40 billion in 2007.
Retail
LA has 1.8M retail under construction and only 34% preleased.
ATL has 1.3M retail under construction and only 21% preleased.
ATL led the nation in negative absorption in retail with -3.2M.
We've already had -35M retail negative absorption this year which is also unprecedented. In Atlanta, if this negative absorption continues over the next year or so, we are going to see retail vacancy rates creep close to 14% which is disastrous, considering vacancy rates hadn't been over 8% in over 10 years until last year.
There has barely been over $3 billion in retail sales this year down from almost $30 billion in 2007.
A couple weeks ago I took a long drive here in Atlanta to see what all of this looks like out on the ground. I drove on Roswell Rd. from Buckhead all the way up to Cumming. Quite a long drive and very telling. I'm guessing that I saw upwards of 20-30 shopping centers that looked mostly empty or at least had a vacant anchor space. These ranged from 40 yr old strip centers to renovated in the past 10 yrs to absolutely brand new centers. Everyone talks about how WalMart often leaves holes in a community by abandoning old stores. Well, that is nothing compared to all the empty grocery stores and anchor spaces I saw on that drive. I have a hard time seeing all that vacant space being filled up anytime within the next 10 years. I just can't see it happening. So all these empty centers start to act as a blight on a community. The best case scenario is finding new uses for this space but that is much more difficult that what you see happen with old warehouses or flex space.