You hear so much about the housing slump that it may come as a surprise that commercial real estate activity in the state continues to be strong and healthy.
“We are doing real well,” said Duke Loden, director-broker, Century Commercial Real Estate Services, Tupelo. “We have been very fortunate on the commercial end that the recession in the housing market has not really slowed us down, primarily because of Toyota and the excitement about it. We have had a lot of suppliers and wholesalers who have come to town.”
Some new retail is under development in the area, probably linked to optimism that sales will pick up when the Toyota plant and related suppliers that are locating in area get up and running.
“We’re been fortunate to have had that,” Loden said. “Had we not, we might have been pretty slow, too. There has been a good bit of activity and a good bit of optimism. Several things are underway around the Barnes Crossing mall and there are new restaurants including one in the Fairpark District downtown and one at Crosstown — the highest traffic count corner in town.”
Loden said 2007 wasn’t a record for him, but it was a good year. While some of the residential real estate agents in Northeast Mississippi have had a tough time, commercial real estate activity has been good.
Around the metro
There continues to be a good story to tell, also, in the Jackson metro area regarding commercial real estate activities.
“There is a lot of development going on,” said Phillip Carpenter, president of Carpenter Properties Inc., Jackson. “A lot of new buildings are going up primarily in Rankin and Madison counties. The development in Hinds County seems to be pretty limited to downtown Jackson.”
Lower interest rates are expected to help developers who already have projects underway. But Carpenter said, unfortunately, it doesn’t look like tenants are going to be able to take advantage of that. Even though interest rates have dropped and are expected to drop again this spring, the rental rates on new space seem to be holding.
“And I think that is due primarily to the cost of construction,” Carpenter said. “The cost of construction and materials continue to go up, particularly the cost of materials. The cost of any kind of construction materials — steel, concrete, aluminum, gyp board, copper, wood — it all continues to rise.”
There is not a lot of inventory now in commercial real estate. But Carpenter foresees if the new construction continues and the flow of new tenants ceases, then there will an oversupply.
“I don’t think we are there yet,” he said. “We possibly could be approaching an oversupply of retail in Madison and Rankin counties. The industrial market has fared very well in the past 24 months. There has been no new construction in the industrial market in several years. So, we have done a pretty good job of depleting the inventory of available buildings that were on the market prior to Katrina.”
To make the outlook more favorable, Carpenter said Jackson needs job-generators, some new companies to coming into the market to generate jobs and payrolls.
“The economists love to talk about how many times a dollar turns over in the local economy,” Carpenter said. “I know there are good things happening statewide, but the Jackson metro area needs some new jobs.”
What fuels any real estate growth is jobs, among other things, said Cynthia Joachim, owner of Century 21 Harry J. Joachim Inc. Realtors on the Gulf Coast and a past president of the Mississippi Association of Realtors. The National Association of Realtors predicted this past November a small drop expected in commercial sales in 2008 based on the national economic slowdown.
“We are going to feel the pinch a little,” Joachim said. “I fully expect that. But it isn’t going to be the same story as in the housing market. We get lot of calls from investors interested in the Gulf Coast. There are lots of opportunities because of the GO Zone incentives.”
Forbes recently ranked the Mississippi Gulf Coast as one of the top 10 fastest-growing small metropolitan areas of the country. Forbes said the combined area of Hancock, Harrison and Stone counties is expected to grow 23.12% between 2007 and 2012, and the population should increase by almost 17%.
“That bodes extremely well for us in terms of national recognition as a great place to invest and a great place to live in spite of Katrina,” Joachim said. “There is a quite a bit of commercial property on the market. Sales are taking place. There is quite a bit of development coming in. The investor market seems to be holding it’s own. I wouldn’t say we are euphoric about the market, but commercial is holding its own much better than the home market.”
While the availability and affordability of insurance continues to be a concern, Joachim said she has been notified by some of her commercial clients who own multi-family housing on the Coast that their insurance costs have decreased.
“Obviously, they are very pleased and it helps the numbers,” Joachim said. “I think it is important to continue on this path. While certainly there are issues we will deal with here, people need to be aware there is a lot more to investigate in the coastal counties in terms of investments. Fortunately, we are getting people to come to investigate the commercial market. The commercial market isn’t going to see in this short time the drastic drop in conditions we have had to face in the residential market. There is a light at the end of this tunnel.”
Hub City rental demand
In Hattiesburg, there are currently a large number of new apartments under construction. Andy Stetelman, president of London & Stetelman Commercial Realtors Inc., estimates approximately 850 new units are in the works.
“We’re looking at a good slate of new apartment units in the market,” Stetelman said. “Some are concerned the market is softening a little bit, but we haven’t seen that yet. Hattiesburg being a transient community is somewhat immune to this. I won’t say we are totally protected. There were some hick ups in the mid-1980s concerning a moratorium on new apartment construction. There was some overbuilding and a softening effect of the market. We saw we were headed in the wrong direction, and that is the only time we have had any talk about a moratorium.”
Demand for housing increased in Hattiesburg after Hurricane Katrina, and some of the new apartments are likely to replace older units being retired. Stetelman also expects the abundance of new apartments to result in some renovations to older units so older complexes can compete with new inventory.
“So it is good for everybody,” he said. “Typically, rent will be a little better.”
Hattiesburg still has a lot of retail activity going on, as well. Stetelman said the GO Zone tax incentives from Katrina have put the Hattiesburg area in a Mecca of development right now.
“Until we get to the end of the GO Zone, we don’t know where we will stand as far as inventory,” Stetelman said. “We are absorbing a lot of the space out there. There are investors concerned there will be too much inventory at the end of the GO Zone, but I’m not seeing that right now. We are still having a demand for everything out there. We have a big demand for industrial and distribution space. We don’t have enough inventory of that now. We’re not seeing new startups for industrial and distribution. The cost of construction is affecting that. We are losing activity in our market due to the lack of good inventory for that use.”
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.