Market Update – 2/19/09
Still interesting times out there! The office and industrial real estate markets continue to be effected by the “worsening economy”. “Worsening”…well that’s what the feds and the government tell us anyway. Troubling thing is that they don’t seem to have a real handle on when this might all end (of course, if we all knew, THAT would be special!). Trouble is that without an “end in sight” and with the continuing increase in the unemployment rate there won’t be much positive movement from companies. “Positive” meaning expansion. And without expansion we don’t have absorption. And without absorption we will have increasing vacancy rates, regardless if the Southern New England markets are or aren’t “overbuilt”.
So while I hold firm in my previous opinion that the Southern NE markets are well positioned to withstand a short or medium term economic crisis, we are seeing signs of increasing vacancy in the markets, especially in the “mid-size” space category. That said, we are also seeing decent showing activity in the last 2-3 weeks, obviously a good sign for the marketplace.
Lease renewals continue to be the most active sector in the market. Tenants appear to have more interest in renewing (than relocating) and landlords certainly have “open ears” and are willing to renew! While this is a positive sign for landlords with full buildings, it is negative for those with vacant space AND for those landlords with full buildings but significant debt on their properties. Why, yes, because tenants expect more aggressive lease terms and IF you have a lot of debt you might not be able to meet today’s tenant expectations. That said, while we are seeing rent reductions, we are not seeing significant rate reductions at this point.
They say the stimulus plan will help out. We’ll see. From my standpoint, if the credit markets don’t start flowing again, it does not matter what the stimulus package is. Until companies become comfortable using their cash, we will be in this state of stagnation (of course eventual decline) for quite some time.
Stay tuned for more “fun”.