What's your market look like?

7 Replies

As the summer winds down and we look for strategies going into next year, I thought I'd post some local anecdotes that will inform our investing for next year. From a macro standpoint, it looks like interest rates are going to rise slowly and the economy may continue to improve even if the stock market makes a correction. Here are some thoughts on our markets:

Washington, D.C.:

I posted a couple weeks back about Washington, D.C. issues with commercial office buildings. The article from the Washington Post had a lot of statistics. Anecdotally, I don't see much absorption of those large vacant buildings in Northern Virginia near Dulles Airport, Crystal City, Alexandria, and Springfield, VA. A lot of government leases are coming to a close over the next 3 years. Some floors in Crystal City I tour currently leased to the government are almost completely vacant, and the government will not be releasing many. I'm still not sure when the office market will turn around. At some point, someone will make a lot of money buying vacant office buildings, but I don't think it's anytime soon.

Minneapolis/St. Paul, MN:

The suburbs of the Twin Cities are seeing a good pick up in tenant demand, and I’m amazed that demand has remained robust late into summer. For the past 6 years around this time, it has been fairly quiet until the next spring. We’re seeing demand for everything from retail clothing to office to restaurants. Lease rates are still about where they have been for the last 5 years, but vacancies are falling. Increasing rents may only be a season away…

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Originally posted by @Greg V. :

As the summer winds down and we look for strategies going into next year, I thought I'd post some local anecdotes that will inform our investing for next year. From a macro standpoint, it looks like interest rates are going to rise slowly and the economy may continue to improve even if the stock market makes a correction. Here are some thoughts on our markets:

Washington, D.C.:

I posted a couple weeks back about Washington, D.C. issues with commercial office buildings. The article from the Washington Post had a lot of statistics. Anecdotally, I don't see much absorption of those large vacant buildings in Northern Virginia near Dulles Airport, Crystal City, Alexandria, and Springfield, VA. A lot of government leases are coming to a close over the next 3 years. Some floors in Crystal City I tour currently leased to the government are almost completely vacant, and the government will not be releasing many. I'm still not sure when the office market will turn around. At some point, someone will make a lot of money buying vacant office buildings, but I don't think it's anytime soon.


 Washington, DC as in District of Columbia, as opposed to the Washington DC metro area (incl. NoVa) ,is doing quite well.  Well at least west of the river (Anacostia River).

@Greg V. I have noticed empty office buildings all over. My office is in McLean, every ther building in McLean remains vacant. I am in residential RE, what do you think is causing a downturn in DC area commercial? 

M Marie Maxwell you're exactly right. In DC proper, the market is very robust. A lot of interest for in redevelopment in your area, the soon to be former FBI headquarters, the DC harbor, and others. Tourism is up and DC is now viewed as a "cool" city according to the Post. They're doing a great job creating multi-family units in the city. 10 years ago when I went downtown it was like a ghost town on the weekends. Now there's new restaurants and bars everywhere.

Midwest Farmland Prices:

The farmland price appreciation is about to turn the other way, and looks like the first area of real estate to turn down. Recent data has shown that nationwide farmland price appreciation is in the single digits in some areas and down slightly in others. Farm debts have increased significantly since last year. While many “experts” will state that farm debt on land is much lower than in the 1970’s during the last significant downturn, they fail to realize that equipment debt has soared. As long as the dollar continues to appreciate, the Chinese (and much of the world) economy softens, farmers may be seeing corn in the $3’s and beans in the $9’s. Weather is always a wild card so make sure to watch both North and South America’s forecasts. Looking to history for a guide, we expect a 30-40% drop in farmland price within the next 3-5 years. 

Carson Sweezy it's really interesting isn't it? For people not familiar with the DC area, these vacant building we're talking about are A properties in well off neighborhoods. They've been vacant for about 5 years since they were built. Many of the buildings were going to be owner occupied government contractors and from what I can tell are just going to ride out the cycle. Contracting dollars have really decreased with the government insourcing a lot of work and anecdotally I've heard of many contractors submitting offers below cost just to keep the business. I'm sure we've hit bottom unless we get sequestration.
I think in about 5 years we'll have some pretty great deals in these areas once the owners have given out hope of filling them.