Thought
Market Sales and Leases for 6/09
Sales and leases continue to meander along but lease renewals continue to dominate the market. September and October 2009 activity will say a lot about 2010. Click the link below for the June 2009 market activity report.
June 2009 Market Transactions.pdf
Keep smiling!
Mark
Keep the Faith!! – 8/2/09
Well, the beat continues!!! Depending on what you read and who you speak with, the “crystal ball” is getting a little clearer in Southern New England…I think!
My main premise earlier this year was essentially this…The markets aren’t overbuilt…Whether we go deep into the great abyss or only feel some significant short term pain will all depend on if:
1) We see positive economic signs of recovery by Q3 09.
2) If we stop seeing employment deterioration by the end of Q3 or Q4 09.
3) If we see employment growth by early-mid 2010.
Well, I think we are starting to see #1 happening and I think we will see #2 happen as well (I know that not everyone agrees with that opinion). #3? Well time will tell. Personally, I think we are looking at a big-time “V” recovery and that will mean employment gains sooner rather than later.
What does this mean for Southern New England if I am right…a much less significant decline than everyone expected in the user-driven industrial real estate market and a somewhat quicker recovery as well. I still believe that the “Dooms Day” projections will prove to be inaccurate and overstated.
Does that mean that we are out of the woods and that landlords should be stand firm on their rates and start partying in the streets? Not at all. It’s still a buyers (tenants) market out there and, at least in the short term, landlords need to retain tenants. But at ALL costs??? I don’t think so.
The crystal ball is clearing a bit and I think that light you are seeing in early/mid 2010 is the sun (not a train).
Keep smiling!
Mark Duclos
Market Update – 6/13/09
Tough to measure the industrial real estate markets by the week or even by the month but it seems like we are getting so many mixed signals from the economic “experts” these days. Many interpreting the same information differently. So…here’s a quick update…one might say a quick “View for the Street”.
Just like retailers, the industrial markets need shoppers before we can have buyers. Well, today we are seeing more shoppers…just not sure if they are “buyers” yet (tenants included). That’s the good news. The bad news is that those shoppers are definitely seeing more product when they go out and look. Yes, there continues to be more product (buildings) coming on the market than coming off. So, while sellers are seeing more showing activity they need to deal with the fact that those “buyers” have more choices (thus more control on pricing).
The majority of market transactions continues to be in the lease renewal world. Tenants taking advantage of today’s markets by pushing landlords to renew early (including a lower base rent) or vice versa…Landlords pushing tenants to renew early to “firm up” their tenant base. Either way, both sides win. Tenant and landlords…if you haven’t thought about doing this…you need to!
Market lease pricing continues to adjust downward. Good news is that it still isn’t a slide. Yes, there are exceptions. Most notably in the large building sector (100,000 sf plus). The vacancy rate in that market has increased to the point of very aggressive landlord pricing. That said, we’ve seen 10-15% lease rate adjustments in the small-mid size markets in the last 6 months.
Not sure if my opinion has changed much over the last few months though. I still believe that we will be seeing a rebound in the economy before we see blood in the streets in the industrial real estate markets.
Gergen – Lender Update – 5/23/09
David Gergen was our guest speaker at a recent REFA Hartford event and he described me as a contrarian. Said that I felt that the market wasn’t as bad as everyone said it was. OK, yes I am probably a contrarian but NOT because I don’t think that market isn’t as bad as everyone says it is. I’m a contrarian because I don’t think the market will be as bad in the FUTURE as everyone says it will be!
Clearly it is my opinion that, while today’s markets have significant challenges (challenges that we will need to deal with for some time) I DON’T believe that the markets will crash like so many of my colleagues do. The theory out there now is, in part, because of the CMBS and other credit/valuation/borrower issues there will be large amounts of foreclosure activity over the next three years (much of the CMBS market matures through 2012). While it is difficult to predict what happens in the CMBS market (although I don’t think there will be a crash in this market), I do believe that, in general, the overall “lender borrower” relationship is much more civil today than it was in the early 90′s (the period of time that everyone compares today’s markets to). I believe that today’s lenders have developed a more patient approach to their borrowers and that this patience will pay dividends (much of this patience has been because the Fed has allowed the banks to deal with valuation of their assets). This patience will pay dividends because (in my theory) it will allow the borrowers the time to work through their owns issues AS the economy begins to recover and BEFORE the lenders begin foreclosure.
Now this theory doesn’t work with all borrowers or all industries. I think it is safe to say that there are borrowers out there that have been hurting for some time and these borrowers are near the end of their rope. It is also safe to say that there are some industries that will take longer to recover and lenders might run out of patience with them as well. However, in the early 90′s lenders didn’t discriminate between industry and borrower. If there was a technical default, you were done! THAT created a tremendous amount of foreclosures of commercial/industrial properties which resulted in a glut of industrial space on the market. The demand for space didn’t come close to matching the glut, this created years of inventory to work through.
If lenders remain patient I believe that they will be rewarded for that patience with performing loans, happy customers and a solid real estate market with sound fundamentals.
Patience and civility…what a concept!!!
Keep smiling…
Mark Duclos
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”.
Client Industrial Market Update – 12/15/08
It’s been a crazy few months for all of us so I thought I would take a moment and give you a quick update on today’s Central/Southern New England commercial real estate markets and what we see in the coming months.
As you know, the financial crisis has made things a bit difficult for all of us. Whether it’s due to the direct shortage of credit or problems associated with your customers getting credit, most of us have felt the pain in some way or another. This certainly has had an effect on the region’s commercial real estate markets as well. Unfortunately, this “credit crunch” has caused even healthy companies to, at least temporarily, hoard cash and go into a “wait and see” mode. It has forced other companies to make painful cuts. This has a direct negative effect on job growth, capital equipment purchases and economic expansion.
The good news is that the industrial and office real estate markets in Connecticut and most of Massachusetts were not overbuilt entering this crisis so the immediate effect on vacancies and rates, to date, has been relatively mild. That said, real estate inventories have risen slightly due to the availability of non-speculative, owner-occupied availabilities slowly entering the market (i.e. vacancy due to plant closings, re-structuring and consolidations). At this point the increase in inventory in that sector has been slow. Time will tell if this continues or accelerates. It is our belief that the next 90-120 days will tell us a lot about this segment of the market.
Showing activity in the industrial sector remains solid. However companies “decision cycles” (whether for lease or purchase) continue to be extended. Therefore, while we are seeing transactions close (mostly lease transactions), they are at a slower pace than the past. Additionally, due to cash considerations, many companies are deciding to renew their existing leases rather than expand or incur the cost of relocation (cost to move and/or the cost of business interruption).