Office transaction volume for 1st quarter 2011 is double last year at a preliminary $12 billion and as more closed transactions are verified it might approach $15 billion for the quarter. Of this, $2 billion was in New York City and Washington DC. Average price in these two markets plus San Francisco, Los Angeles and Boston came in at over $300 per foot. Coastal California, such as santa Monica is coming back the quickest. Several other troubled markets averaged less than $100 per foot such as Phoenix, Chicago, Philadelphia, Tampa, Atlanta and Detroit. Where I am presently, Columbus, Ohio is tightening significantly.
Investors are now looking at properties with higher vacancies for future income growth as lease rates climb. During the downturn tenants were able to negotiate some real attractive rates and a buyer is locked into that lease for the duration of the lease plus options.
The discount for distress has come down from around 60% last year to 40% this year. The weighted average for properties that are 70-80% leased and 80-90% leased came in at over $200 – doubling from last summer. Ones that are 95% occupied or better are $250 per foot.
As prices become ‘unreasonable’ in major markets, investors will start looking at secondary markets so I expect that by the end of 2011 we’ll see a wide spread recovery throughout the country.