Tuesday, September 30, 2008

When residential market is hurting, commercial real estate feels pain

When residential market is hurting, commercial real estate feels pain
By Ben Antonius | Daily Republic | September 26, 2008

Brooks Pedder is managing partner at Colliers International in Fairfield. Photo by Brad Zweerink

Brooks Pedder, co-managing partner of Colliers International in Fairfield, answers 10 questions for the Daily Republic.

1. What is your role with Colliers International?

I am the co-managing partner of the Fairfield office. I focus on revenue production and oversee operations.

2. What does Colliers International do?

We are commercial real estate brokers. Our emphasis locally is on the business parks, both industrial and office product. We also have a strong retail and property management team.

3. How would you describe Solano County's current real estate market?

Our office market was hammered by the residential collapse. Outside of medical uses, most local offices have something to do with residential mortgage, residential sales or title. Countywide, office vacancy is about 25 percent. If you look at new offices built in the last 18 months or so, that figure jumps to north of 75 percent. It is the poorest office market I have seen since I started working here in 1985.

4. How has the market changed in the past year?

The big story is our recent inability to recruit out-of-area firms. We had a banner year in 2006 when we brought in about 1.4 million square feet of new industrial users. Last year, our new out-of-area recruits totaled only about 92,000 square feet.

5. How does the commercial real estate market differ from residential real estate?

Much of commercial real estate is dealing with larger corporations, not individuals. The lending parameters have continued to be a barrier to entry for unqualified buyers, and the commercial markets have generally not been overbuilt and overvalued.

6. How does the residential situation affect overall economic development?

On the industrial side, it has had little to no impact. An inability to use institutional funding for larger industrial projects has caused several projects to recently crater. I don't expect existing inventories to see much competition from newer developments until well into 2010.

7. What opportunities does the current market create in Fairfield?

If there is a silver lining for this disaster, our lower housing costs now make us more attractive to industrial and office site selectors because the region's overall cost of living is going down. We might be able to lure some great firms into our county as a result.

8. What problems does it pose for the cities?

A slow commercial market affects revenue. Much of the local business parks are in redevelopment areas. Everything from property taxes, How of sale tax and overall gross multiplier benefits of all employers are eroded when the market is down.

9. What are cities doing to generate real estate interest in these times?

Most cities in the county are doing a good job of marketing their respective opportunities and are working closely with the Solano Economic Development Corporation.

10. Where do you see the market a year from now?

With no new spec projects in the pipeline, I do expect the vacancy problem on the office side to improve and reach a healthy state in 18 to 24 months. The industrial market is still healthy and I see its continued improvement as no new product is scheduled to come on line for at least a year.