POLICOM releases annual rankings for the 366 metropolitan areas and 576 so-called micropolitan areas nationwide.

The Top Ten Economies

1.Seattle-Tacoma-Bellevue, Wash.
2. Washington Metropolitan Area
3. Denver-Aurora-Broomfield, Colo.
4. Houston-Sugar Land-Baytown, Texas
5. Sacramento-Arden-Arcade-Roseville, Calif.
6. Salt Lake City
7. Des Moines-West Des Moines, Iowa
8. San Diego-Carlsbad-San Marcos, Calif.
9. Madison, Wis.
10. Dallas-Fort Worth-Arlington, Texas

Understanding the Rankings

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With their stronger economies, these are the office space markets that we would expect to lead the recovery.

January 8, 2010 WSJ - The office market in Washington, D.C., is poised to topple New York as the nation's most expensive, reflecting the declining fortunes of the nation's financial center and the government expansion under way in the U.S. capital.

Rents declined in almost all of the 79 American cities tracked by Reis Inc., a New York based-research firm, in the fourth quarter of 2009. The largest fall was in New York, where average effective rents -- or the net amount tenants pay after landlord concessions -- fell nearly 20% to $44.69 per square foot annually. It was the sharpest decline in rents ever recorded by Reis since it began compiling data in 1981.

By contrast, average rents in Washington were $41.77 per square foot, down 3% annually. Reis estimates that by the end of this year, rents in New York will come down to around $41.07, slightly below their estimates for Washington of $41.27.

Entire Article

A recent article in the Wall Street Journal reports that office vacancy has reached 15.2% and is expected to continue rising to 19.3% over the next year. The data comes from REIS, Inc a provider of commercial real estate performance and analysis data for over 25 years. Over 25 million square feet were returned to the market in the first quarter of 2009 driving vacancy rates up and rents down. "Effective rents, which include free rent and other landlord concessions, fell 2% in the first quarter to a national average of $24.16, the largest drop since the first quarter of 2002, according to REIS. Sublet space, on average, is going for between 10% and 15% less than what landlords are charging."

It is a great market for tenant looking for space or renewing during the next 12 months.  Smart Landlords cutting deals to keep their buildings full during this downturn providing tenants a great opportunity.

Markets such as Houston and Washington DC, with less exposure to financial services, is weathering the downturn better than others like New York City. The vacancy rate in New York increased two percentage points in one quarter, from 8% to 10.2% and rents dropped over 5% to $52.00 per square foot, still over double the national average.

How can you, as a tenant, take advantage of this opportunity? Make sure you get professional assistance. OfficeFinder tenant representative specialists can provide you the answers to your questions and help you find and negotiate (or re-negotiate) a great deal. There is no obligation to contact them and there is usually no cost to you for their services. Request a contact.

Cushman and Wakefield recently published their Winter 2009 Office Space Forecast and it's not a pretty picture. Basically, it is what we would expect with this economy.  Office space occupancy in the CBDs will continue to deteriorate due to employment reductions throughout the the US. This will occur even as the economy starts it's rebound. 

No surprise that they are also predicting sublease space offerings to continue their uptrend.

According to the report, rental rates will begin their descent and bottom out by year end 2010. With vacancies increasing they are predicting that the gains made in rental rates over the past 3 years will be wiped out.

"Manhattan, San Francisco and Orange County CA could see rates dropping as much as 20.0% from 2008 levels. Meanwhile, energy-producing markets like Houston will remain bright spots (though not necessarily for long if oil and gas prices continue to fall), as they are expected to eke out modest rent gains throughout this economic downturn." They also predict that Boston, Philadelphia, Washington, DC and Seattle will weather the current downturn much better than other markets. While new York and New Jersey are expected to be the weakest and slowest to recover.

C & W Winter 2009 Forecast (pdf)

Hurricane Ike, a category 2 storm, made landfall on the upper Texas Gulf Coast on September 13th.  Daily life changes immediately when one has little or no access to water, electricity or gasoline.

Houstonians acquired a ‘snake bitten’ attitude after Hurricanes Katrina and Rita.  Many locals tried unsuccessfully to evacuate during Rita while the city was operating in crises mode.  Because Rita made landfall east of Houston, and the herculean efforts of many to evacuate turned out to be ‘unproductive’, many elected to stay put during IKE.  We operated on generators (if you were lucky), water stored in the tub, propane powered cooking devises, batteries and candles.  And we all labored to insure the day’s required work was completed by sundown.

Home owners and businesses on same power grid as a fire or police stations, or other governmental offices, had their power back on in a day or two.  I know of many that went three weeks or more.

Various data sources cite:  Loss of Life – 66; Lost Productivity - $6B; Infrastructure Damage - $10B. 

How did this event affect Houston commercial real estate values?

While IKE did slow us down for a few weeks, the underlying activity, albeit slower than in 2006 and 2007, is still healthy.  Our firm closed several mid-size lease transactions immediately prior to, and after the storm.

Houston has arguably the best economic profile of any US city.  Demand remains healthy for high quality office environments as well as newer more functional industrial facilities.  Our rental rates, particularly for high class "A" assets, are at an all time high.  Most industry professionals expect a slight decline in absorption through 2009.  However, we collectively have not seen any significant reduction in rental rates or selling prices.

According to the Real Estate Center at Texas A&M, 3rd Q 2008 Houston posted 40,739 sf of positive net absorption, pushing the year-to-date tally to just over 400,000 sf. The quarterly growth was largely attributed to Class-A properties recording a 532,581-sf gain as the year-to-date net absorption (for Class A) total rose to over one million sf.

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