4:55 pm Tue, November 20, 2012 POSTED: 04:55 PM Tuesday, November 20, 2012 BY: Ben Myers, Reporter New Orleans City Business TAGS: industrial, listings, Louisiana Commercial Realty, Louisiana Commercial Realty, New Orleans commercial real estate, office, retail, Robert Hand, speculator, speculators, vacant land
That suggests deep-pocketed speculators and other investors are diving into the distressed property market, which Louisiana Commercial Realty owner Robert Hand considers a healthy sign for the local economy.
He dissected the data in a November 16 conversation with CityBusiness.
Can speculation be a problem if it’s just speculation only? It’s a healthy sign. What I am deducing is that these properties that have been on the market almost twice as long as normal is that these properties are not loved. They are blighted properties that require lots of attention. Maybe they are in a tough neighborhood.
But somebody recently has come along and decided to speculate and buy these things that previously were difficult properties. If they weren’t difficult properties, they wouldn’t have been on the market for very long. If we can rule out whether they were overpriced — and none of these that were transacted were overpriced compared to the last 12 months — that shows a healthy commercial market. It shows a healthier economy.
The asking office lease rate is dropping. Are lease rates simply dropping enough that they are stimulating movement? The properties that sold or leased were transacted at 15 percent below the list price, which is about average of what we’ve seen the last 12 months. The only unusual thing is the
properties that were sold recently were on the market a lot longer than normal.
If you look at the asking lease price, it was $16.74 versus the last 12 months at $17.39. So of the properties that were leased or sold, it doesn’t appear they were overpriced. The lease and the asking price were both under the average.
Retail listings are up, as are days on the market for those sold or leased. Does this mean that space not previously in demand is moving because retail is expanding? People want the low-hanging fruit first. When property on the market for a long time finally starts being leased or sold, it means that speculators are coming into the market. That’s really a healthy sign.
People are willing to take risks. Normally the banks won’t loan money for speculation. This tells us you probably have people with deeper pockets that have more equity. They are willing to buy those blighted properties that up until now they weren’t.
Industrial property listings are increasing. Is it a buyer’s or seller’s market in the industrial sector? I still think it’s a buyer’s market in the industrial sector because you still have a lot of what I call elasticity. Of the additional supply that comes on the market, how does that affect price? What we are seeing people looking to buy and lease is still pretty price sensitive.
The average property leased in the industrial sector leased for $4.59 a square foot, which is down almost 50 percent from the 12-month average, which was $6.18 a square foot. Some of that depends on the area. Elmwood is $6, Mid-City is $4.50 and New Orleans East is $2.50. But on average what we saw recently was industrial properties that were leased at prices below the last 12 months.
There’s more vacant land available, both in the number of listings and millions of square feet. The days on the market are much fewer. What does that tell us? It’s not really a seller’s market because the prices are not higher than normal. Of the properties that were sold, they were sold 24 percent below the list price. Sometimes it’s just because land is hard to value.
It really depends on what you are going to use it for. You can have somebody that is going to put it in the gas station that makes it highly profitable, and they are willing to pay more for it than someone who is going to put in a parking lot.