a little piece of the world

Over the course of my time as a real estate advisor, I have turned to the market reports of other brokerage firms for the necessary market insight and data points to stay on top of things.  These reports can range from a two pages to several dozen pages, ranging from a brief summary to comprehensively highlighting every major transaction in the market, key trends and predictions, case studies of major deals, and insight into what may come in the year ahead.

I would like to aid my readers in their quest for knowledge and career longevity by providing two services:

1. To help my readers “dissect” a research report
2. To provide review of the major brokerages’ reports availability and depth

In order to fully comprehend the finer points of a research report, one has to be familiar with the component parts.  Rather than choose a specific brokerage firm’s report for this step, I will instead utilize The CoStar Office Report - Q1 2007 - Chicago Office Market.  This report weighs in at a whopping forty-one pages of Adobe PDF glory and analyzes both the downtown and suburban office markets in Chicago (similar reports are available for other markets at the CoStar Quarterly Market Report Online Store.  For this exercise, we will not be evaluating specific data in the report, instead focusing on the key sections and statistics worth understanding as a tenant.  We will save deep analysis until we begin to review specific brokerage market reports in the near future.

The Analysis

The Table of Contents

The Table of Contents (TOC) is always the best place to start.  The TOC shows us that there are a couple of supporting sections (Methodology, Terms & Definitions) to aid us with our comprehension of the report.

Methodology

The methodology, when provided, is a handy place to find out how the researchers went about gathering their data.  It may also explain how certain statistics are calculated.  Since this is not a review of CoStar, I won’t discuss the accuracy of CoStar’s data in this post.

Terms & Definitions

CoStar’s report includes a respectable two-page glossary of terms.  Even without the rest of the report, this glossary is valuable to the beginning real estate executive, highlighting key terms you will see in this and other reports, as well as elsewhere within the commercial real estate industry.

Market Highlights & Overview

The overview acts much like an executive summary, highlighting major activities, trends and statistics in the metro area.  CoStar’s report also provides good snapshot comparisons against historical statistics.  Let’s step through each of the key subsections to this section.

            Absorption – an analysis of the space being consumed.  Higher absorption means one or more of the following:

• Businesses are expanding
• New businesses are moving in to the area
• Space has been removed from the market

Low absorption tends to lead to higher vacancy, which in turn means better conditions in which tenants can seek space and negotiate terms.

Vacancy – an analysis of the unoccupied space in the market.  Higher vacancy means one or more of the following:

• Businesses have contracted their space needs
• Businesses are relocating from the area
• Space has been added to the market faster than it can be absorbed

High vacancy is often better for tenants because supply then outstrips demand.  Less than 15% vacancy in a market begins to tip the scales in favor of landlords.  When vacancy drops below 10%, it is often a sign that the market can support new space or buildings.

Largest lease signings – this section lists some of the big players in the market.  Knowing the largest users in your building(s) can increase your likelihood of getting the best deals when negotiating your lease(s).  A good tenant representative broker should know all of the big players in your market or submarket.

Sublease vacancy – how much sublease space is on the market.  This information can be useful if you are either shopping for deals on sublet space or considering subletting some or all of your own space.  Be aware that sublet space can have wildly different rental rates due to the inclusion of build-outs, furnishings or other non-building amenities, but will typically be lower than conventional space in the same building.

Rental rates – Everyone wants to know these numbers – brokers, other tenants, developers, the bank – you name it.  While there is no comprehensive database of actual rental rates, CoStar has fairly reasonable approximations due to the size of their database.  For better accuracy in a given market or building, ask your tenant representative to prepare a comps sheet of similar closed deals in the market.

Deliveries and Construction – When a new product comes online, that’s good news for tenants.  Although new buildings typically command the highest rents, this greater supply often creates a vacuum effect, pulling tenants from older A and B class buildings, increasing relative vacancy and with it, improving negotiation conditions for tenants.  When possible, your tenant representative should align your lease negotiations with favorable market conditions.

Inventory – the total space in the market.  This data is most useful for calculating vacancy percentages.

Sales activity – major building transactions are a must-know for tenants and real estate decision makers.  When buildings exchange hands, tenants must not only be aware of their rights as determined deep within the small print of their lease.  Tenants also need to understand the motives that different landlords and leasing agents may take with respect to their buildings.  This can have a material impact on the terms and concessions available to tenants.

CoStar Markets and Submarkets

CoStar has provided a quick overview of the key markets and submarkets within the Chicago metropolitan area.  As a real estate decision maker, it’s useful to identify your market and submarket – this way, statistics that are broken down by geography or submarket will have more meaning for you.

Employment & Tenant Analysis

This section is a blend of employment and tenant statistics.  Most useful for data junkies, these statistics can also be handy for the human resources executive or department when it’s time for strategic planning.  The industry trends can also be useful as benchmarks to see where your firm compares to the overall industry figures.

Lease expiration statistics might be of value if you wanted to execute a complex strategy aligning your lease expiration with or against the market.  However, I do not recommend trying to “play the market” when it comes to your space needs.  Instead, rely on the sound advice of your tenant representative to use their expertise and negotiate terms that align with your long-term business strategy.

Inventory & Development Analysis

This section provides an overview and statistics related to new and in-progress construction.

Figures at a Glance

The provided statistics in this section are most useful for comparing submarkets and building class types.

Leasing Activity Analysis

Here we have an overview of local office leasing conditions.  Pay particular attention to Select Top Office Leases (p. 22) to help you identify any major tenants in your building(s).

Sales Activity Analysis

Sales activity, to reiterate an earlier comment, is useful to tenants when it changes the negotiation landscape.  Note if your building or other buildings in close vicinity to you have changed ownership recently.

Analysis of Individual CoStar Markets

Local submarket analysis is a good opportunity to gain a greater understanding of current trends and historic activity.  This analysis may help forecast future market dynamics in your area.

At my office, on your first day as a new broker, you receive a stack of documents and binders of information to prepare you for the days ahead as a successful real estate broker.  One of the most valuable of these documents has to be the Real Estate Research Cheat Sheet, a chart of the top real estate and general business/industry news and data providers.  It provided me with countless (i.e. 17) different locations from which I could gather knowledge for my business development activities.  Although it was handy to receive such a list, there was no user’s manual, so I was left to determine on my own what the difference was between valuable data and useless time-wasters.

Instead of expecting corporate real estate professionals to go through the same struggle I faced in identifying useful online news resources, I have decided to filter the list that I received down to the top 5 news sources that I utilize, providing a better source for those who are lucky enough to find their way to my blog.

General real estate news:

I find myself going to CoStar and Globe Street.  Both provide granular RSS subscriptions and keep me updated on major activities and trends across major commercial real estate markets in the United States through short “activity blurbs” that provide just as much as necessary to keep a pulse on the market.

Local business news:

Tie between Crain Communications and Biz Journals.  Each company has its list of covered markets.  To be frank, Biz Journals has a much more comprehensive selection of major urban markets, but I live in Chicago, so I go with Crain’s Chicago Business when I want to stay abreast of local business activity.  I’m a fan of these sites over other similar sites because both provide RSS feeds of their news, allowing me to subscribe and stay up-to-date without clogging up my Inbox or requiring a daily website visit.

Business news (national and international):

Because I track businesses across several industries (Software, High Tech, Education, Not-for-Profit and Public Sector), I find it useful to know any time there is a major event in one of my target industries.  Business Week fills that need for me.  Not only are there a variety of bite-size and longer articles, but the folks at Business Week “get” the internet medium, providing podcasts, blogs and other dynamic mediums for knowledge exchange among the reporters and readers.

A close runner-up is CFO Magazine – the writing and subject matter tends to be a bit heavier than Business Week and they provide fewer articles, but when an article piques my interest, I know I’m going to be leaving the site much more knowledgeable than when I arrived.

Your thoughts?  Feel free to disagree with me – I’m always looking to improve my sources.  If you have found a website or blog that provides solid news, share it with my readers.  On the other hand, if you leverage one of the aforementioned sites, what keeps you coming back?

• http://www.bloodhoundrealty.com/BloodhoundBlog/
• http://commercialrealestate.typepad.com/
• http://www.acreforum.com/
• http://blog.sellsiusrealestate.com/
• http://kwmarketwatch.wordpress.com/
• http://bawldguy.wordpress.com/
• http://realestatetomato.typepad.com/the_real_estate_tomato/
• http://realestatezebra.com/
• http://www.realestatedepartment.org/
• http://www.mynextdeal.com/blog/
• http://blog.retailtrafficmag.com/retail_traffic_court/
• http://www.therealestatebloggers.com/ (not entirely commercial)
• http://www.futureofcommercial.com/
• http://narblog1.realtor.org/mvtype/commercial/
• http://www.socalindustrialrealestateblog.com/
• http://www.mercextra.com/blogs/realestate/commercial/
• http://blog.starboardnet.com/