pain medicine


Register | Recover Password

Four More Things I Think…I Think

Most cognitive biases are completely natural, unlearned, and prevalent in all of us and our everyday thoughts and actions. The hindsight bias is a particularly funny one—especially when listening to pundits. It’s the bias that will allow experts to go on television for the next month stating they always knew LeBron James was picking Cleveland over Miami and believe it (I only heard one expert predict this with conviction). Simply, the hindsight bias allows us to believe our predictions have historically come true and will likely continue to be accurate, when in reality they likely have not and will not. Our brains are not great at predictions, but they are fantastic at rewriting memories to make it seem like we were right all along.

With this in mind—I will once again take a timid approach by saying the items below are not bold predictions, but rather thoughts for consideration (unless they are right).

1. Multifamily demand is going to be around for a little while, but we don’t have enough land.

One of the standouts through both the downturn and the recovery has been the multifamily sector. Fueled by a lack of mortgage financing for many buyers and demographic shifts that are increasing the proportion of the population that is likely to rent, apartment properties are poised to continue performing in 2014 and beyond.

The local market has developed its share of student housing, but hasn’t realized nearly as much market rate apartment product. Until this year, new multifamily development had been relatively dormant over the previous five years. According to a recent MacArthur Foundation study, 45% of homeowners can see themselves as renters at some point signifying a changing attitude toward renting. The response was highest among those in the 18-35 year old age group, which is the range that used to be most likely to be future homeowners.

There has been no shortage of developers seeking multifamily land in the market, but there is currently less than 50 acres of land properly zoned and available for purchase. Of the available acreage, some would be eliminated from consideration based on the cost of site preparation and more based on price per acre when market rental rates are considered.

2. Office product isn’t dead, it’s just smaller

Despite many claims to the contrary, the office market isn’t nonexistent, but it is different. As of June, the Harrisonburg metro area had approximately 162,000sf of office space available, which translates to a 10% vacancy rate.

Nationally, office space requirements have been shrinking in size for years. Standard office sizes were 225 square feet in 2010—they are 160 square feet now, and the goal is to make them as small as 100 square feet. All of this lessens the demand for large office space. The days of filling large office buildings with ease have largely come to an end.
Unfortunately, the great majority of space within the Harrisonburg metro area, 74% to be exact, is above 2,000sf while the greatest demand is for product of less than 2,000sf. Offices in the market and around the nation can be reconfigured to meet this new demand, but locally it has been a slow uptake.

3. Industrial development will start occurring again soon, but we still have too much land.

It is much harder to find built industrial space than might be imagined. Currently, there is 214,000sf of space available on the market. Of the available space, 110,000sf is accounted for in two locations. A tenant requiring 20,000sf or less has twelve options. If that same user needs a dock door and ceiling heights of 24’ –it would be tough to find three suitable options. The site requirements among potential industrial users vary quite a bit, but there are generally more than two variables considered, further reducing the suitable available product. Demand is not outrageous, but it has been high enough to cause further rent appreciation, which should create an atmosphere suitable for some new development.

To be sure, the area has enough land properly zoned for industrial development. Currently, there is just over 1,100 acres of varying size zoned for industrial use in the Harrisonburg metro area according CoStar. As a matter of comparison, 209 acres of industrial land has been sold over the last five years—some of which was purchased for investment purposes only to be put back on the market for sale at a later date. Based on the last five years, which admittedly isn’t the fairest sample, the area will absorb today’s industrial land in twenty-five years.
4. There is an opportunity being missed with strip centers

Net lease properties have officially replaced multifamily as the darling of the investment world. This flight to quality has resulted in capitalization rate compression—in some cases to historically low levels. The combination of low risk national retailers (Sheetz, McDonalds, Walgreens, etc), structured rates, and typically long lease terms make a powerful case for net lease investors. But will the story be as compelling in the near future, which is expected to continue producing appreciating rents and higher interest rates? Meanwhile, shopping centers in their many varieties (community, neighborhood, strip) have not garnered the same level of attention, which is odd considering they are poised to capitalize on both areas of weakness for single tenant net lease properties.


Tim Reamer provides commercial real estate brokerage and consulting services with Cottonwood Commercial and specializes in retail representation, investment property (multifamily | commercial | NNN), and development projects. Learn more at