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When the Crystal Ball is on the Fritz
 
Published Wednesday, November 7, 2012
by JOHN F. WEAVER

Trying to make a decision about commercial real estate in the last three years has been confounding, with many numbers bandied about, but no reliable trends. If one real estate broker thought commercial rents were increasing, another study demonstrated demand evaporating and rents falling. While lawyers protect clients from established risks—injuries on the property, disputes over maintenance and changing space needs—there is little possible to mitigate unpredictable changes in rental rates and whether they work in a client’s favor.

The last four years have been incredibly unpredictable, including tenancy rates and real estate prices for sales and leases. Still, there are sources to supplement the broker and attorney advice to help you make an informed decision about your needs.

Start with LoopNet’s Market Trends pages (www.loopnet.com/markettrends), which provides commercial real estate statistics dating back to 2006 for several southern NH metro areas (Manchester, Nashua, and Portsmouth), including sale prices and rents. Similarly, CBRE New England publishes an annual NH commercial real estate outlook providing a review town-by-town of the I-93 corridor and Seacoast areas.

However, other data beyond real estate availability and pricing should also be considered, including labor trends and bankruptcies. The Federal Reserve Bank of Boston publishes a monthly economic summary for NH, including data on income, housing permits and exports. The Federal Bureau of Labor Statistics updates its NH’s labor data monthly at www.bls.gov/eag/eag.nh.htm.

Just as potential homebuyers might look at data as disparate as neighborhood land in current use (to measure the potential for future development) and proximity to nearby playgrounds and grocery stores, business owners have their own data points to infer the economic potential of a location.

Connect the Dots

Even seemingly disconnected data can indicate how commercial real estate will be valued in the coming years. For example, the Centers for Disease Control and Prevention conducts an ongoing study to determine how many Americans are replacing landlines with cell phones (This study began nearly 10 years ago because the CDC worried the shift to cell phones was hurting the efficacy of its surveys, conducted by landline). It found that between 2007 and 2010, the number of NH residents relying solely on wireless phones more than doubled.

This indicates two things: One, the price of homes in areas with poor cell reception will have to adjust to reflect insufficient communications infrastructure; and two, some businesses will leave areas with poor cell reception to follow customers or because they also abandoned landlines.

If this seems too disconnected from real estate prices, think of wireless communications as a form of infrastructure akin to roads. Businesses that thrived when a well-used town road passed their properties frequently had to close or relocate if  travelers switched to the highway. Today, businesses not served by wireless technology may be in the same position as those enterprises that followed customers to the highway.

Proceed With Caution

Taken together, disparate data points can be interpreted in multiple ways. Case in point: The Federal Bureau of Labor Statistics reports that leisure and hospitality employment is at a 10-year high in NH; the Federal Reserve of Boston indicates that housing permits in the Manchester-Nashua area are up by 25 percent from this time last year; and LoopNet shows that despite a brief rebound last year, retail rents have continued to decline through 2012. A restaurant tenant considering a move into Nashua may look at this and conclude that locating to Nashua makes sense due to the clear growth in NH’s leisure/hospitality field combined with Nashua’s expected population growth, low retail rents, and fairly reliable cell phone reception. However, another restaurant may decide that, in light of the continuing slump in Nashua’s retail segment (as reflected in its rents) and spotty cell coverage, leasing is too uncertain. There is no substitute for doing the research yourself—and not relying on a broker or attorney—as you will do a better job identifying potential risks that an attorney can mitigate in your lease or purchase and sale agreement.

John Weaver is the chair of the NH Bar Association Real Estate Section and a member of the Real Estate Department at the law firm of McLane, Graf, Raulerson & Middleton, Professional Association, which has offices in Concord, Manchester and Portsmouth. He can be reached at 603-628-1442 or john.weaver@mclane.com


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