Click to view the NAI Fact Sheet in PDF format

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Eight weeks after the accident occurred, sales and rentals of vacation homes have slowed, and resorts along the coast are anticipating heavy cancellations. The fishing and shipping industries have been severely impacted, although many workers from those industries are now employed in cleanup operations. A U.S. Coast Guard spokesman warned this week that the cleanup could take years.

The prevailing opinion is that the overall effect of the spill on real estate along the Gulf Coast will be small, and might even be positive in some markets. The accident and its aftermath are not likely to have a significant effect on supply or demand, and thus should not impact rental rates or property values over the longer term. However, an oil spill of this scale in this part of the world is unprecedented–so any speculation is just that.

“Right now, people are taking space because they’re down here trying to work on the situation,” reported Karl Landreneau, CCIM, director of sales and leasing at NAI Latter & Blum, a commercial brokerage firm with offices in New Orleans, Baton Rouge and Lafayette, LA. “All efforts are directed at plugging the well and keeping the coast as clear as possible. It’s too soon to tell what the economic impact will be, long-term.”

Click to view to NAI Global Special Report-Gulf Oil Spill Not Likely to Affect Commercial Real Estate 2010 in PDF format

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We believe that just as the standard economic models failed to predict outsized job losses, they are similarly incapable of predicting an outsized recovery. This pattern characterized the super recessions of 1973-1975 and 1980-1982. In both cases, the extent of the recession was seriously under-predicted by economic models, as was the robustness of the recovery. This is because these models are based on centrality and momentum, making it almost impossible to predict extreme ups and downs, even though notable ups tend to be followed by notable downs (and vice versa).

We project that for the next three years, we can add 3.3 million jobs each year, consisting of the normal 1.8 million new jobs associated with the additional 3million people entering the economy, plus 1.5 million of the 8.4 million lost jobs being recovered. Stated differently, if we recreate 1.5 million of the lost 8.4million jobs each year, in addition to population-driven job growth, for the next three years, we will have restored only 4.5 million of the 8.4 million lost jobs. Thesis hardly a rapid return of the lost jobs, as 45% will not have been made up after three years.

Click to view the NAI White Paper – A Robust Rebound to Mediocrity July 2010 in PDF format

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The office market continues to lag behind the rest of the real estate market. Numerous national and regional companies have closed their offices and/or are downsizing. Office rents in Class A buildings have dropped enough to cause tenants from Class B and C buildings to consider moving up. It is anticipated that occupancies in Class Abuilding will remain the same while B and C will suffer from this migration.

The industrial market is down as a result of the decline in the petrochemical industry. Exploration and refining have slowed significantly over the last year and as a result, many service type buildings with yards came on the market. Large warehouse buildings are remaining vacant, especially the older dock high buildings.

Freestanding retail and strip centers are doing well. Large buildings have been filled with only two, large, vacant buildings remaining on the market; the former Mervyns’ and the space next to Academy. Steinhart is filling the former Circuit City location and Hobby Lobby is expanding in Moore Plaza, the city’s power center. The old Park dale Plaza is finally being torn down and replaced with a Super Wal-Mart, a small shadow center and some pad sites. The redevelopment of Lapalme Mall (formerly Padre Staples Mall) is under way at a cost of roughly $50 million. Every part of them all is being upgraded, including the anchor tenants. The only negative in the retail market was the foreclosure of Sunrise Mall.

The future of Corpus Christi looks bright thanks to expansion at the port and the anticipation of the $3 billion dollar Las Brisas Power Plant and $1 billion dollar Chinese pipe plant.

Click to view the 2010 Global Market Report: Corpus Christi in PDF format

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But do not bet against the U.S. economy. Entrepreneurs are still out there, and with a modicum of political leadership and stable economic policy we will get through this stronger than ever. However, it will take more time than we thought, due to the needless panic that was created by our political “leadership.”

The dotcom bubble gave rise to a belief that fabulous riches can be achieved by age 30 (35 if you are dumb) through financial models, flip books and PowerPoint presentations. “Only chumps work past 35” became a prevalent culture. But great business enterprises, and the jobs and fortunes they create, are the result of decades of hard work and execution, not nifty models. Getting rich slowly is the American way, and most overnight successes prove to be fool’s gold. There is no substitute for rolling up your sleeves every day and working hard on the details. This is true even if you are a genius. We have done capitalism a great disservice by not saying that the “get rich quick” emperor has no clothes.

Read the full Capital Markets Update in PDF format.

By Dr. Peter Linneman, PhD
Chief Economist, NAI Global
Principal, Linneman Associates

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The south side office market is starting to soften. TexasChampion Bank is completing their new headquarter building onStaples Street. They will be consolidating their offices, leavingvacant spaces in three buildings. One building, the Stewart TitleBuilding, will lose a whole floor. There is a strong demand formedical related buildings. Out of town developers are filling newbuildings with doctors and testing laboratories. Most have beenbuilt around the hospitals on the south side.

The industrial sector continues to lead the way for the othersectors. Vacancy is at a record low of 2% with industrialwarehousing being leased at abnormally high rates. There willcontinue to be speculative building for 5,000 to 10,000 SF ofservice type buildings. There should also be a quality stock ofhigh and grade-level tilt wall warehouses announced soon. Themajority of industrial development has been related to thepetrochemical industry, either refining or exploration. Calixas, a manufacturer of luxury yachts, is scouting the area for a suitable site to develop a manufacturing facility. All the refineries are either expanding or upgrading with the cost exceeding several billion dollars.

The overbuilding of smaller strip type centers containing 5,000to 15,000 SF are filling slowly. There are three major redevelopment projects that are nearing completion or are about to start. The former H.E.B. Grocery property in Flour Bluff has been redeveloped with new tenants including Beall’s Department Store, Dollar Tree and Gamestop. Padre Staples Mall, now La Palmera, was purchased recently and will undergo a $50 million upgrade.

A third redevelopment project is Parkdale Plaza. A portion will be torn down and replaced with a Wal-Mart Super Center and44,000 SF of retail space. A 700,000 SF outlet mall is planned at the Nueces County Fairgrounds in Robstown, a small community at Highways 77 and 44.

Click to view the 2009 Global Market Report: Corpus Christi Region in PDF format

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Most of the data in the Global Market Report was collected during the fourth quarter of 2008.Rental rates for Class A and Class B office space, retail and new construction are expressed in gross costs per unit area, indicating the landlord pays all expenses. Industrial space rents are quoted in terms of net rental rates, meaning the tenant pays for most of the operating costs, such as utilities, maintenance, and repairs and cleaning. On all charts, N/A means the information was not applicable or not available at press time.

Click to view the 2009 Global Market Report in PDF format

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