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).