Dynamic in nature, the real estate market is heavily influenced by a number
of external factors. Interest rates, fuel prices and retail sales are just some of the
issues that directly impact the real estate
marketplace. These economic indicators
have a direct bearing on all businesses —
regardless of their sector or size.
“External factors, whether directly or
indirectly, can have a dramatic impact on a
company’s bottom line — something all
business owners are focused on,” says
Susan Kitzmiller, research manager at CB
Richard Ellis.
Smart Business spoke with Kitzmiller
about the outside factors affecting the real
estate market, the importance of being
aware of these factors, and how the market
in Cincinnati is currently shaping up.
What external factors influence the real
estate market?
Nearly everything can potentially impact
real estate markets. Interest rates and the
recent credit crunch caused by the fear of
a subprime debt crisis are two highly publicized factors, but you also have to look at
housing starts, retail sales and employment
figures. These kinds of issues may not have
a direct impact on your real estate expenses as an employer, but they do impact the
dynamics of your business as well as the
needs of your employees. They certainly
impact the needs of your clients and your
prospects, and you need to pay attention to
these factors as you consider the possibility of growth, consolidation or relocation.
Why is it so important for companies to be
aware of these outside factors?
All of these factors can have an impact on
your clients’ or prospects’ abilities to grow
their businesses, which drives their potential needs for more space. These factors
may influence whether a company stays
conservative, by opting not to expand or
expanding at a slower pace. Conversely,
these factors could drive their need to
expand on a much faster pace at a much
larger scale than originally planned.
How are commercial rental rates affected by
such factors as occupancy levels and cost of
construction?
One thing the occupier of a space may
not be aware of, but that we watch closely
for, is the investment cycle of a building. If
owners want to put a building on the market for sale, their stance in terms of rents
and occupancies may be different than
when they are acting as a long-term holder
of that building. Owners may try to fill the
building so that it holds a higher value, or
they may resist filling the building in hopes
that a potential buyer will buy it for the
upside potential and plan to fill it at a higher rate. The point is that the relationship
you have with landlords is likely to be
impacted by their investment strategy. As
an occupier of office space, it is important
to know what is going on in the office market — specific to your building, in your
market and your neighborhood. These factors can impact the cost of space and the
relative advantage of relocating.
The owner’s return on investment is
heavily influenced by construction costs.
As in any other business, the economics of
the project from the outset to completion influence how much of a return the owner
can expect to receive on a project and how
long it will take to achieve that expected
return. Tenant improvements can also factor into overall construction costs in helping to keep construction costs down.
How is the environment for commercial real
estate in Cincinnati currently shaping up?
Cincinnati is experiencing a tight industrial market with limited inventory for larger
scale deals of 100,000 square feet and
greater. These larger deals are mostly taking place in the Northern Kentucky area,
while the medium-sized deals, from 50,000
to 100,000 square feet, are typically found in
the Northern Cincinnati area. Freestanding
building sales continue to be strong as their
available time on the market continues to
decrease. Cincinnati’s office leasing market
continues to get stronger as vacancies
decrease. The market is seeing more large
deals than ever before. This activity is
expected to continue well into 2008.
Why is the rise of mixed-use projects beneficial to all parties involved?
These projects work to everyone’s advantage for a couple of reasons. First, they
allow the owners/developers to spread the
risk and cost across different product types
that appeal to different audiences, especially if it is expected to take awhile for the
office space to lease at your desired rate.
Second, employers like locating in these
types of projects because employees tend to
be happier and more efficient when they
can go to lunch or simply run errands within walking distance of their office. And if
there were a residential component to the
building, then some people would not have
to go very far for work, shopping and dining.
SUSAN KITZMILLER is research manager at CB Richard Ellis.
Reach her at (513) 369-1355 or [email protected].