The commercial real estate market is still showing lingering effects of a recession despite several economic indicators of a turnaround during the first quarter of the 2002. Commercial real estate broker Colliers International released a nationwide survey last month showing the top ten issues facing the market, most of which suggest it will not begin to recover at least until the end of the year.
So, as a tenant, now might be the time to upgrade your office or renegotiate your lease.
“Landlords are very aggressive, as they do not want to lose tenants, and rents continue to trend lower,” says Ross Moore, vice president and director of research for Colliers International. “Sublease space continues to be tough to move, and deals are taking a long time to close as tenants evaluate the numerous options available to them in this market.”
According to Colliers, here are the top 10 factors affecting the weak commercial real estate market:
1. Occupancy levels continue to drift lower across most markets. This trend of rising vacancy is expected to continue for another two quarters.
2. Office rents maintain downward trend. Similarly, suburban rents also dropped during the quarter falling by 3.4 percent to average $25.50 per square foot.
3. Sublease space continues to pile up in many markets. This trend is also expected to extend into the 2nd and 3rd quarters.
4. Job losses remain a dominant theme in the economy.
5. No tenants for new buildings. Select markets are now experiencing “see through” buildings with new developments 100 percent vacant. Most can be found in previously highflying tech markets.
6. Pendulum has swung in tenants favor. Current leasing activity is dominated by lease terminations and not growth.
7. Landlords still struggle to maintain occupancy.
8. Flight to value. As part of their cost cutting efforts, tenants are focused on the value of the office premises and are not swayed by the prestige of upscale office space at a reduced rate.
9. Leasing market activity by small tenants. Markets, both big and small, reported an absence of large lease transactions. More prevalent, however, were smaller transactions in the 4,000 to 8,000 square foot range.
10. Owners/investors remain confident of office real estate. Many owners/investors report that the weak market is caused by high vacancy rates, and not because of overbuilding in their areas.
How to reach: Colliers International, (216) 861-7200, www.colliers.com
