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Bill
Goade,
Chief Executive Officer
CresaPartners LLC
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The real estate market began softening in late 2007 and this trend continues in the first quarter of 2008. Class A rents that soared for high rise view space have hit a ceiling in most markets. The fall out from sub-prime mortgages which resulted in unprecedented losses throughout the financial industry and tightening credit has reverberated throughout the economy. The threat of recession has many high-end users slowing plans for expansion. Due to the above factors, rents did not rise in most markets in the last 2 quarters and vacancy was flat as well. It will be another two quarters before the full effect on rent and vacancy will be known, but those that can wait are often delaying plans. Sale of commercial real estate fell dramatically in the fourth quarter of 2007 after record high activity in the first half of the year. The credit crunch combined with overpriced inventory will continue to effect sales in 2008 and likely through 2009.
Nearly every market, including most of the major markets, flattened in the last 2 quarters after tightening for the first three quarters of 2007. Sales activity remained healthy for fully tenanted buildings in 2007 with record low cap rates leading to record high prices. The effect of the recent credit crunch dramatically slowed activity in the fourth quarter of 2007 and the first quarter of 2008 and amounts paid will likely not be matched for some time to come. The high prices paid will keep the upward pressure on rental rates in place but market forces will prevail. The combination of higher interest rates, recent acquisitions, and lower vacancy rates led to higher rents in most markets in 2007. The credit crunch and modest job growth the last 2 quarters have mitigated the speed of the vacancy rate drop and has kept rent increases reasonable or flat. Many submarkets are already showing signs of softening further.
Credit tenants with flexibility to move will find opportunities more abundant in 2008 than the last half of 2007. When they are able to lock into long-term leases of eight years or more the opportunity increases. This presents a win-win scenario for both tenants and landlords as tenants can cut costs, upgrade space, and gain increased lease flexibility rights, while landlords can stabilize their rent flows. Of course, a corporate tenant should only capitalize on this opportunity with a clear view of the long term, allowing the company to create a strategic real estate plan that aligns with its business plan.
With more than 45 North American offices, over 250 affiliated offices worldwide and over $150 M in North American revenue, we are a major force in the representation of corporate space users. We hope you experience the difference when working with CresaPartners. We are the real estate firm that cares enough to listen.
For more details on market conditions and how you can maximize your real estate options, contact your local CresaPartners advisor or email expectmore@cresapartners.com.
Bill Goade
Chief Executive Officer
CresaPartners
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