The commercial real estate leasing market continues to improve in most geographic areas where we operate. While property sales prices are still fluctuating, it appears that property rents and rental activity have finally bottomed out. It’s been a long time coming, but the slump of 2007, 2008, and 2009 has finally plateaued.
Since the beginning of 2010, I have seen a noticeable increase in the number of inquiries for commercial space rentals. Brokers and prospective renters 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 has ever been. If you want to open a business, a store or an office, this is a golden opportunity to do it before the rents go up again.
After going through their worst years since the 1930s depression, the owners are eager to make deals. At this point, both parties realize that the bottom has been hit. Homeowners want to start filling in the vast amount of empty space that has built up. Real deals are expected for those tenants who are first in line to take advantage of this unique opportunity.
As the number of vacancies decreases, starting rents will begin to increase and concessions will be less. That’s why it’s so important for brokers and renters to take advantage now. I see entrepreneurial companies seizing this opportunity, while larger, more established companies are losing out due to their bureaucratic tendencies.
I have or am in the process of closing several deals with tenants. Each of those tenants is an entrepreneur with more established offices and businesses. They do not trust others too much before making a decision. Twice in January, I saw big corporations lose space to entrepreneurs because of their inertia. These entrepreneurs possess the ability to make quick and agile decisions. They are leasing the best spaces in the building, taking advantage of the lower rents and more concessions on offer, and will be open to the public long before completion invades their market.
The only exception to what I have written is the Treasure Coast market in Florida. While the other areas where we operate are doing much better, the Florida market continues to lag. Excess construction of products, a higher unemployment rate, the arrival of fewer new residents and high property taxes are some of the factors that contribute to Florida falling behind economically.
While I don’t see a return to a previous period of spiraling rents, I do see a period where rents rise proportionally to the economy. Once rents stabilize, property prices will also stabilize. Too often in the last decade, investors overpaid for real estate based on wrong assumptions about what future rents would be. Mortgage lenders have learned their lesson (at least for a while) and will improve their due diligence before lending. Perhaps reality will prevail again in the real estate market.