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Investing in commercial property becoming more popular

With CD rates hovering around the 2% rate, and the performance of the stock market being far from stellar these days, investing in commercial property is being seen as an attractive alternative.

“A trend that we see happening is that investment property has become more popular,” said Philip Holman, president of the Mississippi Commercial Association of Realtors and vice president of leasing and sales for the Mattiace Company, Jackson. “There are a number of buyers looking for income producing property such as office buildings, shopping centers and apartment complexes. If the seller has a property in the range from $500,000 to $5 million, there are a number of buyers looking to acquire. There are a lot of people looking, and only so many properties out there.”

Holman said now is a good time to get commercial property on the market because of the large amount of interest from prospective buyers. He isn’t sure if that is attributed to low CD rates or loss of favor with the stock market. Some of the interest is coming from people who have sold commercial property and want to reinvest in more commercial property in order to do a tax-deferred property exchange.

Most realtors specializing in commercial property say that things slowed down between Sept. 11 and the end of 2001. But activity has increased since the first of the year.

General upswing

“The trends we’re seeing are that there is more activity today than there was in the fourth quarter of last year,” Holman said. “Since the beginning of January most practitioners I have talked to have said there are plenty of people looking and plenty of people buying. There is a general upswing in the commercial economy.”

“It was kind of slow last year,” said Jim Conerly, Jim Conerly & Associates, Jackson. “The trend seems to be picking up a little this year, but not a lot. Retail is holding steady. Other segments like office seem to be stable right now. We’re not at one extreme or the other. We’re sort of right down the middle these days.”

Conerly said that while there is a good bit of interest in property around the Nissan plant in Canton at present, most of that is interest from manufacturers. Usually economic developers, as opposed to commercial brokers, are involved in manufacturing land transactions.

Currently there is an effort to form a new alliance between the Mississippi Commercial Association of Realtors and economic development entities in the state. Conerly said he hopes that leads to the economic developers working more closely to promote commercial real estate activities.

Impact from Nissan

One Realtor, Jim Turner, owner of J. Ed Turner Real Estate in Hattiesburg, thinks the Nissan project is actually depressing commercial real estate activity in the area.

“Things are at a lull,” Turner said. “Activity has slowed down considerably. Nissan is destroying the labor market in Jackson.”

Turner said potential investors may think twice about establishing a new store or restaurant because Nissan has come in paying higher wages, adversely impacting the available pool of laborers. Turner likens it to what happened when casinos came in on the Coast, and restaurants and stores had trouble getting employees.

But Turner said the long-range impact of Nissan should be very positive because of the increased payrolls and disposable income for workers and their families.

Turner said there has been a dramatic slowdown in commercial real estate activity in the past year, and not just in Mississippi.

“Most of your retail has peaked out,” he said. “You are always going to have Wal-Mart looking for a bigger store when they reach a bigger volume. The same thing is true with chains like McDonald`s. Once they reach a certain sales level in the market they look for another location. But the overall scene, I think, is substantially less in terms of growth, activity, and interest from where we were two years ago, or possibly a year ago. I think we’re seeing somewhat of a lull in the market.”

Turner has heard the same thing from colleagues from other states.

Will Lowrey, principal broker for Community Enterprises Inc., Tupelo, said commercial real estate activity in the Tupelo area is picking up.

More confidence

“Everyone seems to have a lot more confidence especially with the interest rates holding,” Lowrey said. “Here in Tupelo we have our new fairgrounds project, which has generated a lot of excitement through the city. It has some potential for class A office space and multi-use residential. This is all new to Tupelo, so it has a lot of people anticipating the outcome. This is something that could define who and what Tupelo is. It is an exciting time for us to think about the possibilities.”

About $60 million has been invested in the fairground’s project, including a new City Hall in the center of the development.

Tupelo also has a new development, the Tupelo Commons, coming in near The Mall at Barnes Crossing. Phase one of the project includes a 10-screen Malco theater with stadium seating, and about 180,000 square feet of retail space. Ten outparcels are also available in the 30-acre development.

Also, Community Enterprises has recently competed a new flex space business development center. The 57,000-square-foot center adaptable for uses such as offices and distribution is the first property of its type in Tupelo.

Wal-Mart clustering

A trend being seen throughout the state, and the country, is towards development of outparcels located next to Wal-Mart Supercenters.

“High volume people want to be near Wal-Mart because of the traffic it brings in,” said Liz Helwick, owner, Liz Helwick Commercial Real Estate, Gulfport.

Currently a number of new retail and restaurant developments have popped up near Wal-Mart Supercenters in D’Iberville and Ocean Springs, and interest in high in outparcels near Wal-Mart Supercenters in Lucedale and Wiggins. New Wal-Mart Supercenters are planned in Pass Christian and Waveland, as well.

Helwick expects there to be increased interest in commercial real estate around the sites in Pass Christian and Waveland when Supercenters open in those locations. There tends to be a cluster effect around the Supercenters.

“Of course, the bad thing about it is that Wal-Mart is killing so many other businesses,” Helwick said. “But Wal-Mart does a good job of pricing and service. With fewer dollars, people are price shopping. So, therefore, if Wal-Mart has the best buy for the dollar, there is no way they are going to fail because that money is going to be spent somewhere.”

Helwick said things have changed in her industry since Sept. 11. She reports people are shopping more carefully for lease space because they know they have to make their dollar stretch farther because and are uncertain about what is going to happen to the economy in the future.

Activity is picking up

“It is getting a little better,” she said. “But people are shopping more and negotiating harder. They aren’t just assuming everything is going to go straight up.”

For a while lease prices have been steadily rising, especially in “hot” areas. Helwick said it has been hard for retailers to “make the numbers work out” so a respite from the steadily increasing lease rates has been welcome.

Contact MBJ staff writer Becky Gillette at mullein@datasync.com or (228) 872-3457.

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