Economic growth and its Effect on Class-B Landlords

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By Jimmy Clark
Jones Lang LaSalle

With the first quarter of 2013 now behind us, the Federal Reserve recently announced its belief that the economy has returned to a moderate growth mode.

The Fed believes the unemployment rate could drop to 7.3 percent by the end of 2013, signifying a stronger sentiment in job growth than previously thought. Furthermore, the national housing market continues to rebound, and many pundits are hopeful that the growth will be sustainable.

Commercial real estate in Indianapolis has followed a similar trend. Vacancies in Class-A buildings are tightening (Q4 2012 stats indicate a 13.4-percent rate, down 2.2 points from the beginning of the year), and Class-A landlords in some submarkets could begin to see much more favorable conditions by the second half of 2013.

But what can be said about Class-B owners? Class-B buildings have seen positive absorption as well, albeit significantly less than Class-A properties, but there is no better time than the present for Class-B owners to position their assets in unique and creative manners.

We have recently seen capital allocated toward lobby renovations at Heritage Park II on the Northeast side as well as broker incentives at Lake Pointe Center 2, also on the Northeast side. Downtown, new ownership groups are trying to breathe life into older buildings, as Ambrose Property Group is doing at Circle Tower. Ideas like these should undoubtedly produce results if the plans are executed correctly.

Class-B landlords have a great opportunity to stabilize their assets and ask for top dollar value when their desired holding periods come to an end. The difference between getting a good return and a return that greatly exceeds expectations is how owners can create competitive differentiation through unique marketing efforts, new or improved building amenities and offering “plug-and-play” uses for tenants.

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