The road ahead in real estate

by Clarissa A. French

SBJ Staff

1997 has been a banner year for commercial real estate in the Springfield market, and next year should bring more of the same, according to local agents and brokers.

There are numerous trends that have been established in the last year or two which are expected to continue in 1998, among them user-driven commercial development, growing interest in investment properties, rising land and lease rates for office and retail, and increasing demand for industrial and office-warehouse space.

Development. User-driven commercial development stands out as a recent phenomenon in the local market, according to Ken Schwab, commercial real estate agent with Wilhoit Properties. "A lot of small businesses want to own their own buildings," he said.

John Johnson, vice president of development for Wehr, Wehr, Johnson & Bridgeforth, said he, too, is seeing "a lot of small business people who want their own location. And there's still a trend toward single-story offices with convenient parking."

Gregg Stancer, managing broker of AmerUs Commercial Group, agreed, adding that another factor in new office development is managed care.

In response to managed care, "insurance firms are branching out into different areas." And agents are leaving some of the larger companies to set up offices on their own.

Additionally, "Accounting firms and law firms continue to branch out," Stancer said, as do investment firms and physicians, creating more demand for office space.

Many firms that build their own offices build more than they need and lease the difference. Should the business grow in the future, the leased space can become expansion space.

In terms of the direction development will take in the year ahead, Stancer said, northwest Springfield continues on a fairly steady industrial track, and northeast should always be strong for industrial. "But as far as new office and retail growth, south will continue to be strong.

"Many of our customers want to be south, and many of the out-of-town, or out-of-state, clients we're presently working with are homing in on south-side locations,"

Stancer said.

Investment. Schwab, who specializes in income-producing and commercial properties for Wilhoit, said "you still find a lot of people interested in investment properties. I think we're seeing a lot of that because of the drop in the stock market in the fall." He added that "interest rates are real attractive" for investors right now, and are expected to stay at attractive rates.

AmerUs' Stancer said his company is seeing more investment as well, but "I feel the stock market is an influence only with larger investors. For the most part, the fluctuation in the stock market has not seemed to affect this local investment market and the local investment strategy" of AmerUs clients, he said.

Meanwhile, Stancer added, his company is seeing a lot of activity in 1031 like-kind exchanges among people interested in investment properties. "There's a lot of that activity now. Part of what is fueling that is the reduction in capital gains" taxes, he said.

"We're getting a lot of activity from people desiring to get out of smaller, multifamily properties and getting into retail and office, and industrial," Stancer added. "The residential type of investment properties are so labor- and management-intensive that they're actually wanting something that's a little less hassle."

While 1031 exchanges are easier than ever before, "There are still complications to it, and one should never be done without the advice of an accountant or attorney specializing in 1031," Stancer said.

Johnson said that real estate traditionally has been a very secure investment while the stock market is very cyclical. In some more urban markets, there has been "a lot of investment in real estate investment trusts,"ÊJohnson said. REITs, which are similar to mutual funds, will come here, as well, he said, but because this is a smaller market, his company generally sees individuals investing in smaller projects.

Prices. "Land prices are starting to go up because of supply and demand." Johnson said. "The supply of land is finite, and as land is used up, developers are having to be more creative with sites that are not as conducive to development as they have been."

Stancer agreed that land values are rising.

"We anticipate land prices definitely appreciating. We've already seen quite a jump in land values over the last year and a half," in the office market, Stancer said. "We've seen as much as a $2-per-square-foot increase for office land in certain areas."

And the situation is similar for retail space. "We anticipate lease rates will continue climbing," Stancer said, adding that "So far, that has not seemed to stop the leaseability of the south-side properties."

Tenants are apparently ready to pay the price for a prime south-side location. "There are just not a lot of properties sitting vacant right now. Some are being leased even before they come out of the ground," Stancer said.

Demand. Meanwhile, though availability of office and retail space is good, there is not enough industrial lease space, according to Stancer.

Johnson said, "I think we'll see more this year in office-warehouse type business. Office has seen a lot of growth, but not as much has been built lately for office/warehouse and light manufacturing we're getting more calls for those types of facilities."

Another issue, Stancer said, is apartment space. "We could use more apartment-zoned land. The city, back in the late '80s and early '90s, kept up with demand for apartment-zoned land, but 1993 and 1994 saw a lot of vacant land get rezoned from multifamily to office and retail."

As a result, Stancer said, his concern is that "with all the industrial growth and all the large corporations moving into this area with the $7 to $8 an hour jobs, the supply of multifamily housing won't keep up with the demand over time."

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