Realty Investing Remains Strong
Commercial real estate investing continues to boom while fundamentals weaken, according to the National Association of Realtors. A record $157 billion was invested in commercial property, excluding the hotel sector in Q1 2007, which was up from $97 billion in Q1 2006. NAR expects property fundamentals “to remain basically sound,” but its analysis of individual sectors predicts that gains in average rents this year will decline from last year’s pace in all sectors except industrial, and that net absorption will drop in all sectors but retail. It also predicts that vacancy rates will increase slightly in office and retail, while they remain flat in multifamily and industrial.

Commercial Mortgage Debt Top $3 Trillion
The volume of commercial mortgage debt outstanding in the United States topped $3 trillion in Q1 2007, an increase of 2.5% from the $2.95 trillion outstanding at the end of 2006. Analysis of Federal Reserve Board flow of funds data by the Mortgage Bankers Association shows that mortgage outstanding grew by $72.4 billion during Q1 ‘07, with about 60% of that growth coming from CMBS, collateralized debt obligations and other asset-backed securities vehicles. Commercial banks hold $1.3 trillion of mortgages, or 43% of the country’s total. Many of the loans they hold could be classified as business loans that generally have a piece of real estate as collateral.

Los Angeles Office Rents to Rise
Rents in Los Angeles County office buildings will continue to rise during the next few years as businesses expand and take empty space off the market, according to a UCLA survey of real estate professionals. In 2006, the average rent was 4.7% over 2005 levels and the rate of increase should be even higher in years ahead. The overall vacancy rate in Los Angeles was a little over 10% in Q1 2007, according to Cushman & Wakefield.

Office Rents on Rise in Downtown Denver
Office rents are skyrocketing in downtown Denver, with some tenants paying as much as $40/sf. The rental boom is the result of investors paying premium prices for upper-end buildings and an increase in construction costs for newly built buildings. However, the boom could grind to a halt because of the new construction planned for Denver. Currently, there is 3.4 million sf of office space either being planned or already under construction in the metropolitan area.

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