While many companies have released market assessments by comparing vacancy rates, new space openings or total supply, Madison Marquette has compiled a number of criteria to form an in-depth analysis.
"One of the things we struggle with is how to compare everyone to everyone," said Walter Bialas, vice president of research of Washington, DC-based Madison Marquette. Vacancy is certainly one criterion, but markets vary on how they are dealing with store closings and overbuilding. "The hard part was going through the data to see what makes sense."
These include retail vacancy (fourth quarter 2008 vs. fourth quarter 2007), the velocity change in vacancy, net absorption, the amount of new space delivered and under construction, the percent of that space still needing to be leased, the total inventory increase, and the percent of total inventory to be leased. All criteria were weighted equally, creating a final score that determined the rankings.
Phoenix tops the list of the markets most likely to produce distressed assets, followed by Las Vegas. New York ranks last, meaning it is least likely to create troubled properties.
"We created this index system to identify potentially distressed markets," Bialas said. "Obviously, Las Vegas and Phoenix have more distress."
Rounding out the top 10 most distressed markets are: Birmingham, AL; Providence, RI; Sacramento, CaA; Atlanta; Tucson; Inland Empire, CA; Broward County, FL; and Jacksonville, FL.
Other results are a bit more surprising, with many more successful markets located in California. After New York, the least distressed markets are: San Francisco; San Diego; South Bay/San Jose, CA; Long Island, NY; Orange County, CA; East Bay/Oakland, CA; Los Angeles; Baltimore; and Washington, DC.
"I would have guessed that San Diego and Orange County would have scored worse," Bialas said.
Markets that had a rapid population increase appear to be more troubled.
"Southwest Florida evolved very rapidly," Bialas said. "It's more than just vacancy, more than just development activity."
Madison Marquette has conducted detailed analyses of market conditions internally to make its own investment decisions.
""We're an owner/investor, and we have a fund where we're trying to determine the best strategies," said Kurt Ivey, senior vice president of marketing. "This helps us."
However, this is the first time that the firm has prepared this elaborate an analysis for public consumption.
"We've been overwhelmed with the response this has received, not just from industry press, but from individuals," Ivey said. "It's not all altruistic – we're interested in potential clients, investors and property owners who give retail real estate a different look. "
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