In recent months, one of the most frequently debated topics in our industry, posed by both landlords and tenants alike is have we really hit bottom? While there are a number of factors that need to be considered when trying to determine what lies ahead, following are a few critical issues that will provide insight in the months to come:
1. The commercial real estate markets performance is a derivative of what occurs in the larger economy. Without recovery in the job market, the health of our industry remains questionable.
2. There is a growing concern surrounding commercial lenders leaving their non-performing loans at bay instead of bringing them in and recognizing the loss. Until these properties hit the market, investors are uncertain how to analyze pricing, thus leaving many of them on the sidelines with a wait and see approach.
3. Today's challenges are exacerbated by frozen credit markets and billions of dollars in commercial loans maturing this year with little to no refinancing capital available.
4. The downward pressures on lease and sale rates have yet to stabilize. Owners continue to aggressively pursue tenants with large incentives - free rent and creative discounts on lease rates continue to drive activity. Disparity in asking rates on lease and sale offerings does not instill confidence that values have or are close to balancing out.
While many economists are predicting slow growth with the worst now behind us, the waters for commercial real estate remain murky. Those in a strong financial position recognize they have time on their side to make calculated, strategic moves. Others are much more concerned about making a less than favorable deal relative to what may potentially lie around the corner.
As optimism continues to make its way back into the marketplace, we certainly anticipate greater clarity on pricing and overall property values. Industry experts are describing what appears to be a shift in attitude, with many adopting a focus of "getting back to business." However, until meaningful growth emerges for a sustained period of time, the path to a stronger market will remain uncertain.
Regardless of whether we are at or near the bottom, existing market conditions still offer numerous opportunities for tenants and investors alike. However, positioning companies to take advantage of these conditions is a much larger challenge. Seek a qualified real estate professional to assist you with whatever endeavor you may be considering.
Thomas A. Holland, SIOR, CCIM, CPM and Jon R. Reno are commercial/industrial real estate brokers with The Heger Company specializing in the Central Los Angeles market with an emphasis in Vernon, California. The Heger Company is a full service brokerage firm servicing all of Southern California and is an Accredited Management Organization (AMO) that manages over 5 million square feet in industrial properties. Please visit http://www.thc-us.com for more information. You can reach us at 5657 E. Washington Blvd, Los Angeles, California 90040 I (323) 727-1144 I th@thc-us.com I jr@thc-us.com
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