Finally! The news we have all been waiting for. CoStar, a major real estate database tracks markets and it is their belief we are in the early stages of an office market recovery. According to their findings we are in the second quarter of positive net absorption of office space. With this said, the turnaround is "anemic" at best and they are not predicting any rental rate increases for another 3 or 4 quarters. Third quarter national vacancies stood at around 13.62%
Now you ask, how does this affect me? Let's break it down. Obviously these are national trends and every market is different. For the Charlotte region it seems Class "A" properties are seeing action from cash rich major corporations. As I predicted months ago, once the turn is apparent there will be tenants entering the market to lock in great deals for years to come. The "B" and "C" properties are not seeing this effect as of yet. Small business is still suffering and is yet to start coming out of bunker mode. There are still very few "warm bodies" in the market and what few there are have enjoyed aggressive offers from landlords. We are still seeing many subleases coming to market and having to compete with these is troublesome for landlords. If you think you are alone, don't! I met with portfolio manager last week with 5-6 million square feet of office and industrial space last week. He said his rents are down 30-40%. Let's not be negative here however, tenant failures seem to have stabilized significantly from last year.
How about sales? I had coffee with a banker recently and he said lending is still very tight. His bank, like many, is sitting on cash and putting very little money out there. The loans they are looking at are being scrutinized like never before. Loan to value ratios are back to more traditional levels. The other half of the equation is that most sellers are not interested in competing with the distressed sale market. They will wait this out. I read a statistic recently that 50% of all sales were in the distressed category. The good news here is we are actually not talking about many sales!
So where do we stand? I still believe the election will be pivotal in this recovery. The small businesses I deal with want some certainty in the economic and political arenas before they take on any risk. Same with investors. There is cash waiting on the sidelines. Real estate is going to look good again in that window of opportunity between lease rate increases and acquisition prices. As with any investment, money is usually made on the buy.
Thanks for reading and let me know what is going on in your world.
Tadd Holzen
T.A. Holzen Commercial, Inc.
Tadd@Holzencommercial.com
