Commercial Real Estate Finally Begins to Rebound

The commercial real estate leasing market continues to improve in most geographical areas where we operate. While prices for the sale of properties are still in flux, it appears that rents for those properties and rental activity have finally reached bottom. It has been a long time coming, but the drop from 2007, 2008 and 2009 has finally hit a plateau.

Since the beginning of 2010, I have seen a remarkable increase in the number of inquiries for renting of commercial space. Brokers and prospective tenants are realizing that this may be a great time to move or expand. The price per square foot for office and retail space is probably the lowest it will ever be. If you want to open a business, a store or an office, this is a golden opportunity to do so before rents once again begin rising.

After going through their worse years since the 1930’s depression, owners are eager to make deals. At this moment in time, both sides realize that the bottom has been reached. Owners want to begin filling the vast amount of empty space that has accumulated. Real deals are to be had for those tenants that are first in line to take advantage of this unique opportunity.

As the number of vacancies decrease, starting rents will begin to rise and concessions will be fewer. That is why it is so important for brokers and tenants to take advantage now. I am seeing entrepreneurial businesses jump on this opportunity while more established and larger firms are losing out because of their bureaucratic tendencies.
I have or am in the process of closing several deals with tenants. Each one of those tenants is entrepreneurial with but established offices and businesses. They do not over-rely on others before making a decision. Twice in January, please I saw large corporations lose space to entrepreneurs because of their inertia. These entrepreneurs possess the ability to make quick and nimble decisions. They are renting the best spaces in the building, taking advantage of the lower rents and more concessions being offered, and will be open for business long before completion invades their marketplace.

The one exception to what I have written is the Treasure Coast market of Florida. While the other areas where we operate are doing much better, the Florida market continues to lag behind. Overbuilding of product, a higher unemployment rate, fewer new residents arriving and high real estate taxes are some of the factors that contribute to Florida lagging economically behind.

While I do not see a return to an earlier period of spiraling rents, I do see a period in which rents increase proportionately to the economy. Once rents are stabilized, then prices for properties will also stabilize. Too often in the last decade, investors overpaid for real estate based on faulty assumptions of what future rents would be. Mortgage lenders have learned their lesson (at least for a little while) and will improve their due diligence before lending. Perhaps reality will once more prevail in the real estate market.

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