Commercial real estate is expected to continue its slow recovery this year before picking up speed, but a recent increase in activity in the Atlantic City market suggests faster improvement for the region.
Fourth-quarter Realtor data on office, retail and multifamily space and projections for the next two years anticipate gains on rents and occupancy toward the end of this year.
But commercial property specialists in Atlantic County are already seeing signs of a turnaround.
“I’ve seen a lot of increased volume and activity with the recent actions of the governor in Atlantic City and the positive things he’s doing,” said Joshua Levin, whose Levin Commercial Real Estate, of Atlantic City, has 18 years experience.
“Some are getting a feel for the market and positioning themselves for what’s going to happen shortly,” said Levin, 43, of Wynnwood, Pa. “We’ve gotten a lot more calls and seen a lot more activity in the last 60 days.”
Much of the interest is from outside this area, he said, from parties finding him through the Certified Commercial Investment Member Institute, an association of commercial representatives with more than 160 hours of specialized education. “I’m the only CCIM broker in Atlantic County,” he said.
Levin said his office represents many properties in the city’s Tourism District and has large casino-zoned tracts, and most inquiries are looking for vacant land either for build-to-suit or speculative purchase.
Frank Sortino, a broker/sales associate at Rose Commercial Real Estate in Northfield, said mainland commercial inventory is being absorbed, deals are getting done and soon the market will tighten, pushing up prices and rents.
“There definitely has been more activity in the last six months than we’ve had in the last two years in commercial, no question,” said Sortino, of the Townsends Inlet section of Sea Isle City.
He said there is a limited number of larger office spaces available, and when those are gone the buyer’s market will wind down.
“If a corporate user is looking for a certain office space, the bottom line is there are only about four spaces available from 4,000 to 6,000 square feet in the Atlantic County mainland where corporate users want to be,” Sortino said.
Landlords and sellers who have waited for the market to recover might as well hang in there a little longer, he said.
“It reminds me of 1997 and the turnaround from the early 1990s. The next thing you know, there was a landlord’s market in 1998 and the tenants didn’t know what hit them,” Sortino said. “You’re going to see rates tighten up and see increases across the board within a year.”
That’s not happening yet, though, and commercial properties are still under considerable pricing pressure as buyers relentlessly seek bargains in what is presumed to be the market’s bottom.
A commercial property on New Road in Northfield, for example, went on the market six months ago at $900,000, said Douglas Groff, the agent with Long and Foster in Cherry Hill who has the listing.
Now the price is $749,000 and it’s listed as “bring all offers.”
Groff said a lot of sellers switched over to leasing properties instead, “but then a price war started from them reducing what they would take. You start by getting $1,500 a month for a building and then somebody else rents a similar place for $1,000 because they’re desperate.
Everyone is waiting for the rebound, but so far the buyers are in charge.
“If a property appraises for $700,000 for example, they want it for $600,000,” he said. “There are very few cash buyers, unless they’re from a different country, and they’ve become very educated as well. They want to steal it too.”
The National Association of Realtors said last week that U.S. office rents were down 1 percent in the fourth quarter, with the vacancy rate 16.4 percent. By the end of this year, the rate is expected to drop only to 16.2 percent, although rents are expected to turn upward slightly by then.
Retail vacancies of 13 percent aren’t expected to change this year, but the rent decline of 1 percent in the fourth quarter is expected to stabilize.
The first sign of commercial improvement continues to be in multifamily housing, where the fourth quarter vacancy rate of 6 percent is forecast to fall to 5 percent this year, and rents are expected to continue growing about 1 percent per quarter.
Lawrence Yun, chief economist for NAR, like Sortino sees a quick turnaround going into 2012, with vacancy rates falling quickly and office rents jumping 4 percent that year.
The Commercial Real Estate Index of the Society of Industrial and Office Realtors jumped 8 percentage points in the fourth quarter, its biggest gain in five years.
That put the index at 50.7, its highest level since the fall of 2008, but still well below the 100 level that indicates a balanced commercial market.
While the consensus is that commercial recovery nationally will be steady but modest this year, professionals in the Jersey Shore market think the reforms by Gov. Chris Christie and the developments in Atlantic City could bring positive change more quickly.
“Gov. Christie has revitalized Atlantic City a little bit, and the two casinos (the resumed Revel project and the expected Hard Rock casino) are going to have a positive effect,” Sortino said. “There’s a buzz in the market right now.”
Levin credited Christie with creating a forum in which Atlantic City can be marketed as an entity and not just individual casinos.
“If the governor gets done what he’d like to accomplish, it will be the best thing since gaming was approved,” Levin said.
“It’s about time somebody gave Atlantic City some direction.”
Contact Kevin Post: