The CCIM Institue has come out with their market analysis of the commercial real estate sector and it calls for very modest growth in the office space sector (full discussion below). Slower employment growth, as would be expected is the main culprit.
"Office Space: Office markets are showing only modest improvement. Office employment has increased 2.2 percent during the past year, compared to average growth of close to 3.0 percent during the past cycle and well over 4.0 percent during second half of the 1990s. Moreover, firms continue to find ways to squeeze more workers into fewer square feet. Even with modest growth, net absorption has risen for five consecutive quarters, but growth is exceptionally modest by past standards. With little new construction, vacancy rates have edged lower, falling 0.4 percentage points over the past year to 17.2 percent, according to Reis.
While the overall market is seeing only modest gains, there are a few pockets of strength. Major technology centers, including the San Francisco Bay Area, Seattle, Austin, and Raleigh, N.C., all continue to see strong demand. Rents have grown the most in the San Francisco Bay Area and New York, which is also increasingly driven by the tech sector.
Despite the sluggish pace of recovery, office property sales have increased this year. Properties in key technology centers, areas with a great deal of exposure to healthcare, and a few major energy markets, such as Houston, continue to outperform most other major markets. New York appears to be successfully navigating the slowdown in the financial services industry and is seeing an influx of technology jobs. Washington, D.C., however, has seen demand for space and buyer interest wane as continued anxiety and uncertainty about the federal budget has sent chills through market. The suburbs of Washington, D.C., are faring better with the tech sector fueling gains in northern Virginia and healthcare driving gains in suburban Maryland and Baltimore."
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Commercial Real Estate , Manhattan Office Space , New York Office Space , Office Space Negotiations , San Francisco Office Space , Seattle Office Space , Washington DC Office Space
I spent the day yesterday at the Commercial Broker's Association (CBA) Commercial Real Estate Form. A great program on relevant issues in today's commercial real estate markets. The one presentation that hit hard was Market Knowledge: Strengths and Weaknesses in Different Segments of the Commercial Real Estate Market presented by Dr. Jim DeLisle, University of Washington Director, Graduate Real Estate Studies at the Runstad Professor of Real Estate.
My take away: The Commercial Mortgage Backed Securities market, where commercial mortgages were bundled and sold, has pretty much evaporated. The only loans that are being made and will continue to be made are portfolio loans, where the lender actually keeps the loan in their portfolio. The result... very few mortgages are being written. It is much more difficult to obtain a commercial mortgage and the loan to value; the present value, is in the neighborhood of 40% - 60%. With many commercial mortgages rolling over in the near future, new financing will be a problem. I expect there will be many good opportunities to purchase commercial properties at attractive rates.
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Buying Office Space , Commercial Real Estate , Office Building Sales , SBA Loan
In a recent Blog post by James Quinn, a senior director of strategic planning for a major university, the time period of the office space market recovery is questioned and predicted to be much longer than many industry experts predict. The main reason for his prediction is his belief that consumers are beginning to "Deleverage," spending less, and it will cause major changes in the economy over the next decade.
"They have no choice. Boomers have come to the shocking realization that you can’t get wealthy or retire by borrowing and spending."
His thoughts on the Office Space market:
"The current office vacancy rate of 17.5% is the highest since 1993 and is just below the all-time high 18.7% in 1992. The WSJ has concluded, with no data or analysis, that the vacancy rate has bottomed. As the employment data proves, companies are not hiring employees. New companies are not being formed. Government mandates and regulations regarding healthcare and uncertainty about taxes will keep the formation of new small companies at a minimum. Conglomerates continue to ship jobs overseas. Part 2 of this Depression will drive more companies out of business. Office vacancies will remain at record levels for the next five years."
On the other side the Wall Street Journal came out with an article, Signs of Recovery For Office Market, last week that predicts that the office space market has bottomed out and that we are starting see some stabilization in the market. They also state that the recovery will be a slow one, but don't define how long that could be.
For us at OfficeFinder.com, over the past 3 weeks we have seen a surge in closed deal reporting in the neighborhood of 2 - 3 times over those of the previous several months. These reports come through our network of office space tenant representatives and executive suite members. We are hoping this continues and identifies the start of the small business recovery.
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Commercial Real Estate , Lease Negotiations , Office Rental , Office Space Negotiations , Office Vacancy Rate
A little more good news on the employement front. A new survey says 36 percent of businesses worldwide plan to hire new employees in 2011.
Commercial Real Estate , Office Space
That includes almost a third (32 percent) of U.S. businesses, according to the biannual Regus Business Tracker survey, which is based on interviews with more than 10,000 senior businesspeople in 78 countries. Employment and office occupancy go hand in hand. Without job growth Sixty-five percent of U.S. businesses expect revenue to increase during the next year.
However, 41 percent of companies still are looking for ways to cut overhead, though they don’t intend to do so by cutting employees.