Chasing the Right Markets

As commercial real estate markets crawl back to recovery, certain metros are posting strong growth in Phase I environmental site assessment volume while others struggle. The forecast for a spotty recovery through the rest of 2011 means that careful attention should be paid to where the action is (and where it’s not).

High-growth metros (denoted by green circles in the figure) like Houston and San Diego—referred to as global gateways—are attracting investors’ attention in 2011 after a slow 2010. What these metros have in common is above-average job and population growth, proximity to international trade routes, and high concentrations of financial/professional services, technology-related industries and Fortune 500 firms.

New investment and originations—and thus environmental due diligence activity—will likely be concentrated in these global gateways in 2011. All of the top 10 metros significantly outperformed the national 8% growth rate, ranging from 24% in Baltimore to 69% in Houston.

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The lowest Phase I ESA growth rates can be found in metros like Phoenix and Las Vegas that overbuilt during the boom years and still have high volumes of unraveled distress.

Recommendations

Significant differences separate the metro winners and losers so far in 2011. For firms with strategies that are geographically focused, it becomes important to steer resources toward areas with above-average Phase I ESA activity and avoid spinning your wheels in the ones that are struggling.

It is also worth noting that real estate markets are shifting quickly. While the accompanying graph highlights 10 high-growth metros as of May 31st, the EDR metro ranking will likely look very different as investors start to look beyond Tier 1 metros in their search for margins in less competitive Tier 2 markets.