Archive for the ‘Tenant’s Guides’ Category
|Tenant’s Guide, North American Markets
Wednesday, January 18th, 2012
Overview
As we begin a new year, U.S. and Canadian businesses will once again face a very challenging economic landscape with the twin worries of a still tepid economy here in North America, and the unknown effects of the ongoing European debt crisis. Global growth has already been scaled back as recession like conditions had become evident in a number of European countries at the tail end of 2011. This will almost certainly delay business leaders from pushing forward with any expansion plans until more is known about the breadth and depth of a European recession and any possible bank failures or credit difficulties.
The good news for tenants in the market for space this year is that leasing markets in North America will remain fairly benign with still significant discounted rents and an abundance of for lease space in all but a small number of submarkets. Canadian markets are certainly further along the real estate cycle, but for North America as a whole, leasing markets are at best treading water and are unlikely to tighten in any significant way in 2012 and quite possibly 2013.
Barring the unexpected, business conditions in North America should be marginally better in 2012 than in 2011, but for many industries the economic landscape will seem as daunting as it has for the past three years. The worldwide trend towards lowering debt (a process referred to as deleveraging) by governments and individuals alike will be a contracting force impacting many countries. This is sure to act as a significant drag on economic growth, both here in North America and countries around the world. This will not escape the notice of business leaders and real estate decision makers and will again stifle leasing markets. Varied sources of instability are also making businesses more nervous about making long term commitments. While Cresa doesn’t have the inside edge on what surprises might be coming our way, what we can say with almost complete certainty is business leaders will again be confronted by a large array of “shocks to the system” whether they be domestic or foreign. As a result, most businesses are expected to stay largely cautious as they continue to be challenged by a very uncertain and volatile economic landscape. Add in the prolonged uncertainty and further erosion of confidence in the U.S. political system and it is not unreasonable to foresee a further delay in expansion and hiring that would ignite leasing markets and put a floor on lease rates. Decision makers will continue to err on the side of caution until there is a significant increase in job growth, most likely well into 2013.
Business Drivers
For business leaders the fragile nature of the U.S. economy will continue to be paramount. A reasonably strong finish to 2011 should lead to a relatively good start for 2012, but with consumers largely tapped out and governments at all levels making spending cuts it is highly unlikely the U.S. economy will grow by more than 2.0 percent – just marginally better than 2011. Themes that dominated in 2011 are again expected to be front and center in 2012. Relatively anemic job growth, high oil prices, deleveraging and a still shaky housing market are all expected to be stiff headwinds for much of the year. Monthly job gains are expected to mirror 2011 with approximately 150,000 workers added to payrolls per month leaving the unemployment rate stuck between 8.0 to 9.0 percent. Industries adding jobs include technology, social media, energy, healthcare, and education. One key source of weakness, however, will be finance which has shown little growth over the past few years and is unlikely to do so in 2012.
To read the complete North American Market overview, please visit our Tenant’s Guide page. There you will also find guides for individual markets, from Albany, NY to Washington, DC.
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Modest Job Growth Helps Recovery in Select Markets, Q3 2011
Wednesday, October 19th, 2011
By Bill Goade, CEO
As Q3 2011 comes to a close, the recovery has not picked up any momentum and in fact has slowed. The few markets that showed recovery in the first half of the year (Silicon Valley, the Bay Area, Cambridge, Mass., and high-rise midtown New York) continued to show strength. However, in most office markets, job growth has remained modest, and demand has been relatively flat. It will be another year before national vacancy begins to fall significantly and average rental rents rise. A full market recovery does not seem likely for some time unless job growth accelerates dramatically.
The national availability rate of 17.3% is slightly down from Q3 2010, the high point since 1993. Meanwhile, average rents are still well below the highs by more than 25% in 2008 in most markets.
In most places it remains a tenant’s market and an especially good time for credit-worthy tenants to exercise their leverage in negotiations with landlords. While some landlords are becoming more bullish, most are focusing on tenant retention at almost all costs as demand remains sluggish in markets nationwide.
Along with modest job growth is the phenomenon of unused “shadow space.” Companies will backfill that space as they hire rather than expand. At the same time, over 70% of transactions continue to be renewals rather than relocations.
Bright Signs
Positive indicators include the following: The amount of occupied space increased slightly for the third straight quarter, and average office rents also rose slightly, their first spike since Q2 2008. In addition, investment activity rallied last year, recording $168 billion in sales, up 60% from 2009.
Opportunities for Tenants
The window is still open for tenants in most markets, and we continue to encourage companies to be proactive in negotiations before their leverage begins to slip. In some instances, one- or two-year extensions are available as landlords anticipate a better market in 2013 and beyond. Because of the likely tightening in availability, we rarely recommend the short-term extension strategy at this time, unless the business plan simply cannot support a longer commitment. However, tenants need to weigh flexibility versus likely rent hikes in two or three years. In other instances, tenants, especially those with strong business plans, have an opportunity to lock into leases of eight years or more. Finally, given low interest rates and impending changes in lease accounting, this may be an excellent time for some tenants to buy real estate.
Click here to read about your local market.
Tags: corporate real estate, job growth, landlord, recession, tenant, unemployment
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Modest Job Growth Helps Recovery in Select Markets
Wednesday, July 20th, 2011
By Bill Goade, CEO
In mid-2010, economists declared that the recession was over, and the recent unemployment rate of 9.5% seems to confirm modest job recovery. But as Q2 2011 comes to a close, the recovery has not picked up any momentum and in fact seems to have slowed. The few markets that showed recovery in Q1 (Silicon Valley, the Bay Area, Cambridge, Mass., and high-rise midtown New York) continued to show strength. However, in most office markets, job growth has remained modest, and demand has been relatively flat. It will probably be another year before national vacancy begins to fall significantly and average rental rents rise. A full market recovery will probably not occur until 2013, when we likely will reach pre-recession employment levels, and that will occur only if the job growth picks up. For the most part, there is little velocity for class B space, and suburban areas are generally suffering more than CBDs.
The national availability rate of 17.3% is slightly down from Q3 2010, the high point since 1993. Meanwhile, average rents are still well below the highs by more than 25% in 2008 in most markets.
In most places it remains a tenant’s market and an especially good time for credit-worthy tenants to exercise their leverage in negotiations with landlords. While some landlords are becoming more bullish, most are focusing on tenant retention at almost all costs as demand remains sluggish in markets nationwide.
Along with modest job growth is the phenomenon of unused “shadow space.” Companies will backfill that space as they hire rather than expand. At the same time, over 70% of transactions continue to be renewals rather than relocations.
Bright Signs
Positive indicators include the following: The amount of occupied space increased slightly for the third straight quarter, and average office rents also rose slightly, their first spike since Q2 2008. In addition, investment activity rallied last year, recording $168 billion in sales, up 60% from 2009.
Opportunities for Tenants
The window is still open for tenants in most markets, and we continue to encourage companies to be proactive in negotiations before their leverage begins to slip. In some instances, one- or two-year extensions are available as landlords anticipate a better market in 2013 and beyond. Because of the likely tightening in availability, we rarely recommend the short-term extension strategy at this time, unless the business plan simply cannot support a longer commitment. However, tenants need to weigh flexibility versus likely rent hikes in two or three years. In other instances, tenants, especially those with strong business plans, have an opportunity to lock into leases of eight years or more. Finally, given low interest rates and impending changes in lease accounting, this may be an excellent time for some tenants to buy real estate.
Click here to read about your local market.
Tags: corporate real estate, job growth, landlord, recession, tenant, unemployment
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Modest Job Growth Helps Recovery in Select Markets
Wednesday, April 20th, 2011
By Bill Goade, CEO
In mid-2010, economists declared that the recession was over, and the recent unemployment rate drop to 8.8% seems to confirm modest job recovery. Real estate is a lagging economic indicator which generally trails other economic indicators by 9-12 months, so it is little surprise that in a few select markets real estate has shown signs of recovery. In most office markets, job growth has remained modest, and demand has been relatively flat, but in Silicon Valley, the real estate recovery is already happening. High-profile tenants, including Google, Facebook, and Yahoo, have all taken significant blocks of space there. In addition to Silicon Valley, the exceptions include high-rise view space in New York City, the Bay Area, Cambridge, MA, and Pittsburgh. But it will still probably be another year before national vacancy begins to fall significantly and average rental rents rise. A full market recovery will probably not occur until 2013, when we likely will reach pre-recession employment levels. For the most part, there is little velocity for class B space, and suburban areas are generally suffering more than CBDs.
The national availability rate of 17.3% is slightly down from Q3 2010, the high point since 1993. Meanwhile, average rents are still more than 25% below the highs in 2008 in most markets.
In most places, it remains a tenant’s market and an especially good time for credit-worthy tenants to exercise their leverage in negotiations with landlords. While some landlords are becoming more bullish, most are focusing on tenant retention at almost all costs as demand remains sluggish in most markets nationwide.
Along with modest job growth is the phenomenon of unused “shadow space.” Companies will backfill that space as they hire rather than expand. At the same time, over 70% of transactions continue to be renewals rather than relocations.
Bright Signs
Positive indicators include the following: The amount of occupied space increased slightly for the second straight quarter, and average office rents also rose slightly, their first spike since Q2 2008. In addition, investment activity rallied last year, recording $168 billion in sales, up 60% from 2009.
Opportunities for Tenants
The window is still open for tenants in most markets, and we continue to encourage companies to be proactive in negotiations before their leverage begins to slip. In some instances, one or two-year extensions are available as landlords anticipate a better market in 2013 and beyond. Because of the likely tightening in availability, we rarely recommend the short-term extension strategy at this time, unless the business plan simply cannot support a longer commitment. However, tenants need to weigh flexibility versus likely rent hikes in two or three years. In other instances, tenants, especially those with strong business plans, have an opportunity to lock into leases of eight years or more. Finally, given low interest rates and impending changes in lease accounting, this may be an excellent time for some tenants to buy real estate.
To learn more about your local market, check out our Tenant’s Guides here.
Tags: corporate real estate, job growth, landlord, recession, tenant, unemployment
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