|FOR IMMEDIATE RELEASE|
|January 28, 2011|
|Economic Recovery Is Going To Be Slow Say Speakers At Annual MEREDA Forecast Conference|
|PORTLAND, Maine While economists say that the recession officially ended in 2009, the dozen speakers at this year’s Annual Real Estate Forecast Conference sponsored by the Maine Real Estate & Development Association (MEREDA) generally agreed on that while there are some encouraging signs in certain sectors, the recovery is going to be slow.
Tom Lea, MEREDA President and Senior Vice President and Group Manager of Commercial Real Estate at Peoples United Bank also noted in his opening remarks that this is “a time of transition” for the commercial real estate industry and Maine.
“I would like to believe that we have weathered the worst of the economic storm that hit us two years ago,” Lea said, “but regardless of where our economy is or isn’t there is no question that the change of power in Augusta has the potential to bring about profound changes in how our industry is viewed and regulated.”
More than 500 real estate developers, brokers, architects, bankers, attorneys, accountants and other professionals gathered at the popular conference in Portland yesterday to hear a prominent economist and leading members of the commercial real estate industry give their predictions for the coming year in various regions of the state and market sectors. Newly elected State Treasurer Bruce Poliquin also addressed the conference and annual awards were presented to industry leaders.
Charles Lawton, Chief Economist at Planning Decisions, Inc., and columnist for the Maine Sunday Telegram, told conference attendees that the 2007-2009 recession was “deeper and longer” than other recent recessions and that the view of the future remains “murky.”
MEREDA’s Seventh Annual Member Showcase, where 60 MEREDA members exhibit their products and services, was held in conjunction with the forecast conference. The conference and exhibits offer members of Maine’s commercial real estate industry an opportunity to network and share information each year.
The following are some highlights of the Forecast Conference presentations:
Southern Maine Retail Forecast
The big story in retail was the arrival of national names like Trader Joe’s in Portland and Cracker Barrel in South Portland. In downtown Portland, the loss of L.L. Bean and Olympia Sports was offset by the pending arrival of Reny’s.
In terms of new construction, Malone said that with 500,000 sq. ft. still available, construction is unlikely to rebound in the near term. However, the overriding trend nationally and locally is more upbeat, with an increasing sense of stability in the retail market as consumers gain confidence.
Looming on the horizon, Malone warned, are proposed new Financial Accounting Standards Board (FASB) standards that would require full disclosure of the total obligations of leasing transactions. The net result of this change could be higher upfront leasing costs, increased costs and complexity of reporting by tenants and adjustments for adverse impacts on financial ratios, loan covenants and earnings. The change could also cause shorter-term leases without renewals and lower property values.
Midcoast area Market Overview
Annually visited by more than 2,000,000 people, the area will continue to grow due to its well-developed tourism and marine trades infrastructure, as well as cultural assets, natural beauty, and small, safe communities. Development in the region, which has an unemployment rate below the state average, benefits from a variety of local, regional and state incentives and inter-community collaboration among economic and community development directors and Chambers of Commerce.
A new 150,000 square foot Super Wal-Mart is planned for Thomaston in 2011 and the area also will be getting a new Tractor Supply Company store and several new residential and commercial developments.
Central Maine Market Forecast
On a positive note, the City of Lewiston continues to be bullish on the Bates Mill redevelopment, committing $5 million to construction of a 400 space parking garage to support more than 200,000 sq. ft. of office space development in the mill complex. Paszyc believes that the floor has been set for apartment transactions in the area and the big unknowns for the coming year are the possibility of a casino at Bates Mill #5 and the future of Auburn Mall, which is for sale.
While Augusta has typically been characterized by low vacancy and strong demand, primarily driven by state government and Maine General Medical Center, there are many questions for the capitol area as 2011 begins. Most notably: what impact will the LePage administration have and what will happen on the east side of the city as the new medical center (slated for 2015) takes shape in north Augusta?
Growth continues around the Central Maine Commerce Center on Civic Center Drive as Maine General has committed to a 51,000± sq. ft. building to consolidate multiple medical services and construction continues on the new100,000+ sq. ft. office building for Maine Revenue Services and the Office of Information Technology. Another interesting development is the sale of the Maine Today Media building on Western to the Crisis and Counseling Center, whose current offices could be a the site of a new $55 million court building housing district and superior courts first proposed in 2009.
Maine State Economic Forecast
According to economist Lawton, the view of the future is “murky.” The best way to understand what is likely to happen in 2011, he said, is to understand how the recession of 2007-09 is different from the most recent recessions and think about what those differences mean for the coming year.
The 2007-09 recession has run deeper and longer than other recessions of the past two decades. Although the recession technically ended in 2009, 2011 will represent the fourth year of the economic downturn. Best estimates show 2011 getting us back to 96% of where we were when the recession began.
And while the 1990-91 and 2007-09 recessions are similar in terms of the fall in home prices, in 1990 and 1991 home sales picked up from bottom of recession; in 2009 and 2010 home sales picked up artificially and have fallen again.
Maine Vacation/Hospitality Forecast
Thanks to the best summer weather in a decade, summer visitors were up 8% (to 13.7 million) last year. The average stay was four nights, with total overnight guests up 14% to 9.5 million. Occupancy was up 3%, the average daily rate was up 3%, and RevPar (revenue per available room the principal measure of a property’s performance) was up $5.00.
The strongest demand is for high quality, coastal properties with robust revenues, while buyers are staying away from redevelopment opportunities and entry-level properties with a value of less than $1 million. The lending environment for properties remain tough, with banks blending or extending loans with a limited number of distressed property owners. “Viable” property transactions, however, are still being financed by local banks that have a comfort level with the hospitality market. 75%+ loan-to-value and approximately 6% interest rates are still available for strong buyers, but banks often have a preference for SBA Section 504 loan enhancements, and appraisals MUST support contract prices.
On the other hand, Hebold sees favorable trends that could help the industry in the year ahead:
Southern Maine Residential Forecast
Area vacancy rates are 0 5% for Portland; 10 15% for Biddeford; and 15 20% for Lewiston/Auburn. Landlords are split over whether or not it was more difficult to find tenants last year than in 2009, Vitalius said, with slightly more saying it was harder and most landlords saying that rental prices were unchanged from the prior year.
Hot issues for landlords in 2010 were bedbugs, including misconceptions about the problem and how to treat it, new EPA lead paint rules affecting the renovation of pre-1978 residential properties and finding good tenants.
There was a jump in home sales in the middle of 2010 as the first-time homebuyers credit came to an end, but overall sales volume in dollars was at 2002 levels and at only 61% of the decade-high volume in 2005. The median U.S. home price is back to 2002 levels, and while the median sale price of a home in Maine climbed from $160,000 in January to $175,000 in June, it fell back to $172,500 by December.
In order for home values to stabilize, LePage the following things need to happen:
LePage offered what he called a baseline outlook for 2011:
Overall, LePage said 2011 will show modest growth in sales volume, value and interest rates.
Southern Maine Office Forecast
Sigfridson said that suburban office markets continue to outperform downtown areas and there is strong growth in energy and health care. Market confidence is increasing, rents are stabilizing and steady, gradual improvement will start to occur. We are not looking at a booming 2011, he said, but certainly a better market than in 2009-2010. Rents will be stable to slightly decreased and aggressive office landlords will continue to offer incentives. The highest quality spaces will be leased at lower rates and smart companies will take advantage of the down market. Downtown vacancies will increase as the suburban market continues slow recovery.
The good news is that tenants and users are now looking out three to five years, rather than next six months, and improving demand and limited new construction will enhance rental growth in 2012 and 2013.
Southern Maine Industrial Forecast
Looking ahead to 2011, Perry sees a continuation of the excellent tenant’s market and absorption of existing newer space. In addition, he also forecasts:
Founded in 1985, MEREDA is an organization of commercial real estate owners, developers and related service providers, whose mission is to promote an environment for responsible development and ownership of real estate throughout the state of Maine. The organization provides governmental advocacy and education programs, as well as networking opportunities, on behalf of its members and the industry. The Annual Real Estate Forecast Conference and Member Showcase is the MEREDA’s signature event.
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