Phase I ESA Activity Expands to New Areas in 3Q12

The volume of U.S. Phase I environmental site assessments, a leading barometer of commercial real estate activity, was up a modest 6 percent in 3Q12 over the same period one year ago, according to EDR Insight’s ScoreKeeper model. Commercial property transactions are the lifeblood of the Phase I ESA market, and the same geographic variability that characterizes national deal making trends is evident in the Phase I ESA market this quarter.

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The highest growth rates by state this quarter were Vermont, Hawaii and Utah at 51 percent, 32 percent and 30 percent growth, respectively. Hawaii’s performance was largely attributed to 48 percent growth in Honolulu, its largest metro market, ranking it as the fastest-growing of the top 54 commercial real estate markets nationwide. Boosting Utah’s performance was 27 percent growth in Salt Lake City, the sixth-ranked major metro in the U.S. In addition to Vermont, three states on the Eastern Seaboard – New Jersey, Maryland and Connecticut – rounded out the 15 states with the highest growth rates, at 17%, 14% and 14%, respectively.

While most commercial real estate news is focused on global gateways like Los Angeles, New York and Boston, ScoreKeeper’s 3Q12 output highlights emerging areas of opportunity in secondary and tertiary markets as well. For example, Colorado had an 18 percent increase in Phase I ESA volume this quarter, and its largest metro, Denver, ranked second highest growth behind Honolulu with 32 percent growth year-on-year. Rounding out the top five metros were Columbus (32 percent), Cleveland (31 percent) and Austin, TX (31 percent). Austin’s high rank, combined with strong performance in Houston (8th) and San Antonio (18th) contributed to Texas’ robust 18 percent growth.

The latest data on commercial real estate pricing shows that property prices are recovering faster in the “sexy six” metros (Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C.) and that capital for property investment remains concentrated in these areas. This quarter’s results also demonstrate that investor interest is expanding into secondary and tertiary markets, particularly in the Midwest, likely due to strong competition in the primary metros. Opportunities for office, multifamily, retail and industrial work continue to come to the playing field, especially in metros like Seattle for office and multifamily, and Inland Empire in California for industrial deals.