Mar 30, 2009

Market Update Q1 2009

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By: Dave Girardot

What is happening in our current market for commercial real estate?  I would say that we are seeing two distinct trends in the current market place.

Leasing –
Right now it is all about making concessions on rent to keep the existing tenants and making extreme concessions on rent to attract new tenants.  The competitive market for new tenants is extreme.  Landlords are offering unbelievable first year concessions to secure commitments from new tenants.
I have recently represented two tenants that the landlords offered concessions involving half rent the entire first year and the other an entire year of free rent.
On the landlord side of the transaction I always recommend that the landlord make sure that any rent concessions do not carry on into the second year.  This can really de-value the property if the landlord decides to sale the property in the future.  You need to make sure that you are doing enough to be competitive in the market without decreasing the value by long term rent concessions.

Sales-
We are seeing most buyers on the side lines waiting to see what happens with the economy.  The days of buying on low cap rates for appreciation are dead.  Most investors with money are looking at cap rates in the 8% to 9% range to even peak interest. 
Documented internal rates of return need to be in the 14% to 17% range.  The commercial development and owner-user markets have declined drastically since the peak in 2006-2007.  Inventory of existing product is increasing while unemployment figures continue to rise. 
The economy will have to get back on track before we are going to see a substantial decrease of existing commercial property.  With the complete stoppage of commercial development, those investors that are willing to take the risk will see great opportunity to try to time the market with new product when the economy turns around.

To get the details on how to try to time the market with new product, tenant representation for leasing or consulting with a landlord on how to retain or procure tenants; please give me a call at 212-0112. 

Dave Girardot, CCIM
406-212-0112
dave.girardot@coldwellbanker.com