What two US commercial property stories reveal about development feasibility
Buyers returning to a market sounds like good news. So does the opening of a landmark building. Neither tells a developer enough about what a project is worth.
Two recent US stories make the distinction clear. CoStar reports that more commercial properties are being resold at steep losses, with office accounting for the largest share of heavily discounted sales in its analysis. In Austin, CoStar reports that Waterline, the tallest skyscraper in Texas, has opened amid record-high local office vacancy. Its report says no office tenants had been disclosed at publication, although the project also includes hotel rooms and apartments. The Waterline project site describes a 74-storey mixed-use building with offices, residences, retail and hospitality.
These are different situations, but they pose the same question: which assumptions can a project actually support today?
A transaction is evidence of a price, not a return to the old price
When buyers reappear, transaction volume may improve while values remain below a seller’s earlier expectations. A discounted sale can establish a new basis for the next owner without undoing the loss taken by the previous one.
For a developer or investor, the distinction matters at the start of an appraisal. The last acquisition price, an earlier valuation and today’s achievable exit are three different inputs. Treating them as interchangeable can make a project look viable before its costs and risks have been tested.
A lower entry price can create an opportunity. It can also reflect expensive work ahead: letting vacant space, funding improvements, carrying the asset through a slower lease-up or accepting a lower eventual sale value. The discount is only attractive if the model accounts for the obligations it buys.
Completion does not resolve leasing risk
Waterline illustrates another gap between a visible milestone and an economic one. A tower can be complete and have a compelling mix of uses while its office component still faces a difficult leasing market. CoStar’s report of no disclosed office tenants should not be read as proof that no agreements exist. It does, however, underline why a feasibility case must distinguish announced demand from assumed demand.
For the office portion, the questions are practical. How much space can be let, at what effective rent and over what period? What incentives and fit-out contributions might be needed? How long will empty floors absorb operating and finance costs? And what happens to the valuation if stabilisation takes longer than the base case?
Mixed use can broaden a project’s income sources, but hotel and residential demand do not automatically validate office rents. Each component needs its own market evidence, delivery timetable and sensitivity range.
Model the path, not just the destination
A single stabilised yield or headline sale value hides the period in which risk is concentrated. An appraisal should show the route from today’s position to the proposed exit:
- Reset the basis. Compare the asking price or land value with current transactions and the capital required after acquisition.
- Separate the uses. Model office, residential, hotel and retail income on their own evidence rather than relying on the appeal of the overall scheme.
- Make time visible. Phase leasing, incentives, construction or refurbishment spending, interest and carrying costs month by month.
- Test a weaker case. Change rent, occupancy, lease-up speed, costs and exit yield together where the risks could coincide.
- Identify the decision point. Establish the price, pre-let level or funding terms at which the project becomes supportable, and when the case should be revisited.
The two CoStar stories concern US commercial property; they are not evidence that every market is following the same path. For UK developers, the transferable lesson is a method: anchor each assumption in the local market, then expose how much the result depends on price and occupancy arriving on time.
Buyer interest creates a chance to transact. A striking building creates a chance to attract tenants. Feasibility tells you what those chances are worth under conditions the project can withstand.