Tag Archives: consumer confidence

Tucson Office Market, Industrial and Retail Sectors

Positive Signs Bolster Tucson Office Market, Retail And Industrial Sectors

Positive signs bolster Tucson office market, as well as the area’s retail and industrial sectors

CBRE has released its third quarter 2011 market analysis of the Tucson area office, industrial and retail sectors. Report highlights include:

Office

•    The Tucson office market reported a stronger third quarter, with 71,209 square feet of positive absorption. This compares to 30,786 square feet of positive absorption in the second quarter and 22,028 square feet of negative absorption in the first quarter.

•    The Tucson office market vacancy rate declined in the third quarter, dropping 80 basis points to 17.1 percent. The area’s lowest vacancy was reported in the North Central and West Central submarkets, which both have rates of 13.6 percent. The highest vacancy rate, 27.4 percent, was found in the Southwest submarket.

•    The average asking lease rate for existing multi-tenant office space decreased for the first time this year, falling to $19.26 per square foot from $19.65 per square foot at the end of the second quarter and $19.43 at the end of the first quarter.

•    There will be no new speculative office construction in the Tucson market until demand picks up and the abundant supply of available space goes down.

Industrial

•    Vacany among industrial product declined for the first time in 2011, falling to 11 percent from 11.3 percent at mid-year. While only a 30 basis point drop from the previous quarter, this represents a 60 basis point decline in the past 18 months.

•    The industrial market recorded 121,971 square feet of positive absorption in the third quarter. Although a strong showing, this could not completely ease the occupied space lost in the first and second quarters, leaving the market with 26,996 square feet of negative absorption for the year.

•    The average asking industrial lease rate dropped significantly – 17 cents – to end the third quater at $6.25 per square foot. This compares to $6.62 per square foot at the end of the second quarter and $6.64 per square foot at the end of the first quarter.

•    With much of Tucson’s industrial product aging and functionally inefficient, any improvement in the economy will quickly lead to new construction, driving up lease rates and sales prices.

Retail

•    Tucson’s shopping center market recorded its second consecutive quarter of positive absorption with 34,629 square feet. This combined with the absorption through mid-year brings the market’s year-to-date total to positive 6,989 square feet.

•    The vacancy rate among shopping centers decreased in the third quarter, albeit modestly, to 12.2 percent from 12.3 percent at the end of the second quarter. Yet, vacany remains unchanged from mid-year 2010 when the rate was also 12.2 percent.

•    The average asking lease rate for shopping center space increased for the third time this year, rising to $18.30 per square foot from $17.71 per square foot in the second quarter and $17.64 per square foot at the end of the first quarter. This hike in the market’s average rental rate has been driven, in part, by an uptick in activity and demand in prime retail hubs.

•    Big box tenants and national retailers continue to vie for premium sites in high-traffic trade areas, while sites on the periphery wane in activity.

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Visit CBRE’s website at www.cbre.com for more information about the 3Q analysis of the Tucson office market, as well as the area’s industrial and retail sectors.

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Consumer Confidence

Consumer Confidence In The New Year Will Influence Buying Decisions

Employment and real estate prices have regularly influenced our economy over the last century. Recently, they have negatively compounded the economic crisis and will most likely continue to be an issue as we fight through to recovery.

What will it take to change the direction of unemployment and low real estate prices? It begins with corporate confidence and consumer spending. Due to the challenges we currently face, many corporations have held on to large amounts of cash. Until corporations feel the worst is behind us and start deploying their large cash reserves, we will see a delay in our recovery. These large cash reserves will be used for research and development, marketing, and most importantly, hiring. Over time, people’s confidence will increase due to hiring, and as this happens people will begin to tap into their savings to start buying goods and services such as clothes, small home appliances, automobiles and vacations.

As more time goes on and we experience improvement with unemployment, people will begin to feel more confident and see the opportunity to invest in the markets. Doors will open for new opportunity for individuals to consider buying homes again. People who thought that owning a home was once out of their reach can now afford to buy. Home buying will certainly increase as we see unemployment decrease, which will benefit most of us — as long as we don’t get greedy again. Slowly, both will recover. Unemployment will most likely come down before real estate goes back up.

Everything is cyclical. Eventually, low unemployment and higher real estate prices will help the economy again. How long will it take? We don’t know. Recovery from a crisis such as the recent recession will take longer than we think. Be patient and use the knowledge we have learned from this recession to plan appropriately for the next crisis.

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Falling Prices, More Foreclosures Plague The Valley’s Housing Market

The housing market in the Phoenix metro area continues to tread through troubled waters.

According to a new report from the W. P. Carey School of Business at Arizona State University, the median price for an existing home in the Valley fell for the third straight month. Making matters worse, foreclosures continue to weigh down activity in the existing-home market.

The median home-resale price for last month was $135,000 — $3,000 less than August 2009. In fact, existing-home prices have been falling steadily since May, when the median price was $144,000. The median price was at $143,000 in June, and $137,500 in July.

“Although current interest rates and home prices are very attractive, homeowners don’t seem to be motivated to buy,” says Jay Butler, an associate professor of real estate at ASU. “This lack of motivation can be attributed to anemic economic and job recovery, low consumer confidence and stricter underwriting guidelines, among other factors.”

Home sales last month were particularly sluggish, with 4,800 homes re-sold. That’s down from almost 5,100 in July. In August 2009, almost 6,000 homes were re-sold. The numbers aren’t expected to improve anytime soon as home sales traditionally slow down after the summer season.

“As the year comes to an end, median prices often decline in response to holiday and school activities that allow little time or desire to buy a home,” Butler says. “Beyond the impact of foreclosure activity, the absence of a strong move-up market, will also limit any growth in home prices.”

The other barometer of the Valley’s existing home market — foreclosures — fared just as badly in August. Foreclosures accounted for 45 percent of the existing-home market last month, the highest percentage since January.

“When you add in re-sales of previously foreclosed-on homes, all of this foreclosure-related activity represents a full two-thirds of the market’s transactions in August,” Butler says.

About 4,000 foreclosures were recorded in Maricopa County in August, up slightly from about 3,900 in July. In August 2009, 3,100 foreclosures were reported.

Who To Watch: John Chadwick

John Chadwick
President, Southwest Area
Pulte Homes

John Chadwick knows there have been better days in Arizona’s home-construction industry. Last year was a challenging time for homebuilders and he believes this year will test their mettle, as well. But he’s convinced that builders with sufficient resources will find opportunities as the state’s residential real estate sector begins to crawl out of a deep hole.

Chadwick is Southwest area president for Pulte Homes, the largest homebuilder in the nation and one of the largest in Phoenix and Tucson. Looking back on 2009, he references well-documented woes – deteriorating consumer confidence and job losses that sapped demand for housing and sparked an increase in foreclosures. Noting the impact of the real estate slowdown on the industry’s families, Chadwick says, “the contraction has led to painful and necessary reductions in our work force the past year.”

Looking for a toehold in a rocky economy, homebuilders are constantly assessing consumer needs and making adjustments in designs and floor plans and price, Chadwick says.

“Despite difficulties in market conditions, Pulte still performs at or near the top of the industry,” Chadwick says. “That’s because our strategy remained the same – providing high-quality products, providing buyers with affordable housing options and maintaining a strong commitment to customer satisfaction. Those are the things that make the greatest difference in the long term – a willingness to stick to strategies.”

Another key factor in Pulte’s survival and its increasing market share is its diversified lines of business.  Pulte acquired Phoenix-based Del Webb in 2001, and last summer paid more than $1 billion for Centex Homes.

“Centex targets the first-time home buyer,” Chadwick says. “Pulte is targeted to the first-time move-up and move-up buyer. Del Webb delivers lifestyle communities principally to the active-adult buyer.”

There is hope for homebuilders with strong financial backing, Chadwick says. Thus the Centex acquisition and Pulte’s purchase last year of the 480-lot Rancho del Lago in Vail, southeast of Tucson. It now is a Del Webb active-adult community.

“There will be more to come.” Chadwick notes, adding that he is optimistic about the outlook for Arizona’s residential market.

“On a competitive basis, the Southwest – and that includes Phoenix and Tucson – has returned to affordability,” Chadwick says. “Price declines in housing have positioned Phoenix and Tucson for long-term growth relative to other Western states. They have a great quality of life and strong employment prospects and that makes those markets attractive on a long-term basis. Clearly, we are still in a challenging market environment, but I am encouraged by some signs that a recovery is in sight.”

Those signs include stabilizing prices, an increase in existing-home sales, demand for appropriately priced homes in good locations, a slowdown in foreclosures and a welcome reduction in inventory, he says.

“There is far less new-home inventory in the market and that is a great indicator of an improving supply-and-demand environment,” Chadwick says. “For builders with the resources, yes, 2010 will bring new opportunities to them.”

www.pulte.com

Arizona Business Magazine

January 2010

Man looking up in front of a colorful painting

CEO Series: Brad Casper

Brad Casper
CEO, Henkel Consumer Goods (The Dial Corporation)

Consumers have been cutting back sharply on their purchases as a result of the recession. How has that affected Henkel Consumer Goods’ overall operations, such as vendor relationships, supply chain management, marketing, research and development, etc., and how has the company responded to those challenges?
The challenges have been significant in the past year. It hasn’t materially affected our relationships, but it has forced us to be much more nimble with both with our vendors who supply us, as well as our retail customers who we sell to. You cannot take things for granted in this environment, particularly with our retail customers. One day you think you have the merchandising support, you think they have their back behind you, only to find out that someone has come in and maybe taken your ad space or taken your display space. So that’s forced our organization to be very reactive, to be very sharp with our price points, because value during this recession has been really the operative word. Fortunately, we have a number of great brands that have done very well during this recession, like Purex laundry detergent, Dial bar soaps and body washes, even Right Guard and Renuzit have done excellent. We’re growing share in all of those businesses.

What signs is Henkel Consumer Goods seeing that the recession is abating?
We follow the consumer confidence data very, very closely, and we saw — just in February and March — just as we saw the Dow Jones start to pick up, we saw the consumer confidence (and) you can do a pretty strong correlation analysis between consumer confidence and (the purchase) of consumer goods. Now, they’re still looking for deals. The consumer is still looking for value and bargains, but we are seeing our market sizes that were more discretionary, like air fresheners, a year ago were declining, are (now) starting to grow slightly.

So those categories that I think consumers would classify as “I want, but I don’t need,” we’re starting to see purchases come back in those areas that are wants.

What are some sustainability initiatives Henkel Consumer Goods is undertaking both in its operations and its products?
Henkel has a rich heritage and history in sustainability initiatives. This isn’t something we do just because of the recession; it’s something we do every day. Even starting with the building that we are in, this is going to be a LEED-certified building. We’ve only been open eight or nine months, but we designed this with sustainability in mind. Within our organization we created a kind of self-promoting area we call Eco-mmitment. It was a campaign we kicked off internally because with thought that in order to be a sustainable company (we needed to have) sustainable employees. Eco-mmitment was an internal grassroots effort to create awareness of more sustainable practices that we have here in our offices, as well as in our homes. So we’ve rolled that out, so that all of our employees are a little bit more aware of that.

But when it comes to our innovations, we have a number of sustainability initiatives that are in fact being very successful in the market. More than two years ago we launched Purex Natural Elements — it’s a natural detergent — and it became a $100 million business within a year and we didn’t even have to advertise. It sold itself off the shelf with its natural surfactants. … Again, Henkel’s history in this goes back 40 years. Before most people in this country were talking about sustainability, Henkel was practicing it. And so we (Dial), kind of as the little sister who’s been part of Henkel for five years, we’re adopting these behaviors pretty rapidly.

You worked to make sure Henkel Consumer Goods remained in the Valley. Why was that so important?
It all begins with people. First and foremost, a company can be an accumulation of brands and buildings, but at the end of the day what makes it special are the people. And moving this from the Valley, whether it was just from the East Valley to the West Valley, there’s the risk that we would lose some of our valued employees. Add to that, if you were to take it out of Scottsdale-Phoenix altogether, the probability that we lose the majority of our intellectual property — that would have stood between us. Moreover, when I was offered this job, I was looking forward to moving to Scottsdale, and when I got here I didn’t want to move, I wanted to keep us here!

What skills do C-level executives need in order to succeed in a multinational, consumer products company such as Henkel Consumer Goods?
I think it begins with having a really strong strategic mind and framework. You really have to understand the markets in which you compete, where and how your competition is likely to try to defeat you, and then, kind of like a sports coach, you have to try to figure out how you navigate vis-à-vis them. So you have to understand your own strengths, weaknesses, opportunities and threats.

Business is about people … and therefore you have to learn how to tap those resources that you have. You surround yourself with the best people, but you have to motivate them … and that’s true both of a domestic company, as well as a multinational.

I think when you get into multinationals, we’re working across borders, we’re working across time zones. I’ve been on conference calls earlier this morning with our parent company in Germany as early as 7 a.m. You have to learn to work in a diverse environment, you have to be tolerant of differences, you have to try to leverage those differences to make you stronger. Sometimes that may mean being tolerant of what you thought might have sounded like rude or very straightforward behavior, and it just might be the cultural differences at play there.

Interpersonal effectiveness at the C-level is so critically important, and it’s not just because you’re a multinational; you’d fail, probably, if you weren’t effective in those areas.

    Vital Stats



  • Named president and CEO of The Dial Corporation (Henkel Consumer Goods) in April 2005.
  • Joined Henkel from Church & Dwight, where he served as president, personal care, since 2002.
  • Spent 16 years at Procter & Gamble.
  • Member of the Greater Phoenix Leadership Council and a board member of the Greater Phoenix Economic Council.
  • Holds a bachelor’s degree in science degree from Virginia Tech University.
  • www.henkelna.com
Charles Miscio, a senior vice president at Colliers International

Could The Current Real Estate Mess In Arizona Have Been Prevented?

A few short years ago, when Arizona’s residential market was really cooking, Charles Miscio was getting his teeth cleaned when his dental hygienist made an ominous comment: She owned eight houses and was renting them out to investors, speculators and anyone in between.

“It seems like everyone got caught up in that irrational thinking,” says Miscio, a senior vice president at Colliers International, who has more than 20 years of experience in the Arizona real estate market. “The train had left the station and no one thought it would stop. Well, it took some major missteps by Wall Street, but I think everyone can agree that money train has stopped.”

Fortunately, Miscio adds, Arizona did learn some lessons from past real estate market cycles, and things, especially in the commercial sector, should begin to look better following another nine to 12 months of uncertainty.

“Mid-2010 is what we as brokers are looking toward for recovery,” he says.
Right now, real estate executives and economic experts concede, a credit crunch, plummeting home values and corporate uncertainty have consumer confidence at historic lows. Companies aren’t expanding, leasing or buying more office space or hiring workers. Consumers, in turn, are wary about their jobs and have resisted spending on everything from new cars to health care.

It begs the question, though: Could anything have been done to prevent the current malaise?

Miscio says perhaps those with business ties to real estate (finance, mortgage, brokers, developers, etc.) should have watched the indicators better and kept a skeptical eye on the ever-outreaching building patterns. Developments continually moved to the periphery of the desert, making long commutes a norm for many and impacting the quality of life for many more. Exotic financial structures, which seemed too good to be true, also emerged. As it turns out, reality eventually set in.

“We just need to pinch ourselves once in a while,” the Colliers executive says.
Pat Feeney joined CBRE in 1985, and has ridden many waves in the market. Today, he is a senior vice president dealing mostly with industrial projects. He says current action in all sectors is down, and like, Miscio, he believes any improvement is closely tied to the replenishment of consumer confidence. That could take a while, as the Conference Board’s Consumer Confidence Index, a widely watched gauge of consumer spending, continues to fall to all-time lows. Currently, confidence in the economy is the lowest on record.

Feeney has seen these cyclical patterns before and believes, in the end, this too shall pass; it’s just a matter of time, although there are a few caveats in this current cycle.

“Historically, cycles come and go — the wounds heal and everyone goes back into battle,” he says, adding that past cycles were always followed with an “oomph factor.” That “oomph” was the Internet and tech boom earlier this decade, and the housing boom of the mid-2000s.

“Where is that next oomph?” Feeney asks, citing comments made by an economic analyst at a national economic strategy session.

“…it took some major missteps by Wall Street, but I think everyone can agree that money train has stopped.” — Charles Miscio, Colliers International

“This dramatic improvement also needs to be worldwide, since all of our economies are tied together. I agree with the cyclical thought process; I just think this one will take longer. I just don’t know how long.”

Several things from past booms are playing a huge role in the current bust. A run-up in the cost of land over the past decade held the lid on the market, as did escalating construction and material costs. Some key zoning changes, mostly around Sky Harbor International Airport, have also equated to a real estate industry that could be much worse off.

“This time around, there wasn’t unbridled and uncontrolled activity,” Feeney says. “This was more economically controlled and driven.”

Like many, Feeney remains bullish on Phoenix. People will always want to escape the inclement areas of the U.S. and the congested and strange factor of California. Arizona is a great place to live and affordable housing, one way oranother, will return.

Jerry Noble, a first vice president at CBRE agrees: “Phoenix continues to grow and be a leader in U.S. growth. We have always seen dynamic employers looking for space in quality locations with an affordable work force. Our fundamentals just need to stabilize and we’ll get back to where we need to be.”


www.cbre.com
www.colliers.com