Employers are hiring...manufacturers are producing...and consumers are, well...buying. It appears as if we have since the worst of my three least favorite words: "The Great Recession". Let's try and determine what this means for commercial real estate and specifically what this means for Central Business Districts (“CBD's”. As a good indicator for the office market as a whole, CBD's are a great place to start.
Here are some facts based on the latest CoStar Q1 National Office Report:
■Not too shabby activity pickup: Leasing activity nationwide is up 30% compared to Q1 last year. Not too shabby...
■Houston Rocks: Of note, Houston saw a 300% increase in leasing activity followed by Midtown South Manhattan at 217% and Denver/San Diego both at about 150% increase.
■Vacancy Rises even with increased activity: Averaged CBD vacancy increased from 14.7 to 15 percent.
■At lease vacancy is slowing: The pace of increase in vacancy is slowing across the US.
■Not getting as much "quan" for rents: The vacancy trend continued to impact rental rates which saw a 6.6% decrease from this time last year ...ouch NOI and valuations.
This has all happened even without a huge increase in jobs -- once hiring returns, one can only expect good thing friends. Our advice: Bite the bullet and accept the reality of higher lease up costs and more concessions. Go short on the leases so we can get back to a market that will really rally around hiring. Live to fight another day ... that day is coming around the corner very soon.
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