From today’s U-T (thanks Kwaping!):
An excerpt:
San Diego’s office market reached the 20 percent vacancy rate for the first time in 16 years, CB Richard Ellis said yesterday in its third-quarter report on the commercial real estate market.
The rate was even worse when factoring in the sublease space available, which raised the vacancy level to 25.6 percent.
To put the statistics in brick-and-mortar terms, 14.5 million square feet out of a 56.6-million-square-foot base equates to nearly all the office space in downtown and Mission Valley, the region’s two biggest office markets.
Mark Reid, the brokerage’s regional managing director, said that while the vacancy rate may have been higher in past recessions, the quantity of vacant space has never been so large. However, the empty offices offer opportunity for bargain-seeking tenants, he said.
“It’s a great time to be a tenant if you’re a steady, proven business with a good, solid financial statement,” Reid said. “There are some terrific deals to buy buildings and lease space.”
The prospects for improvement in the vacancy rate look bleak, the brokerage report said:
“The recovery period will likely begin at either the end of 2011 or early 2012 with office employment and net absorption levels returning to a positive trend.”
(says who, his crystal ball?)
“CB Richard Ellis said only 40,000 square feet of new office space, located in Carlsbad, was completed in the third quarter. There was 135,427 square feet under construction in Kearny Mesa, Carlsbad and other north coastal cities.
Only 20,000 square feet of new retail space was completed and nothing was under construction.”
I’m just curios, what are Detroit’s figures? What would a rust belt town like Detroit look like if it were in a pretty setting? San Diego has made me wonder..
Buy now or be priced out forever
I think his crystal ball is closer to being right than most of the wishful thinkers that think the recovery is right around the corner yet have no understanding on the cause of the original affliction.
I think its a good time to be a tennant even if you’re a dead beat. How picky are they going be when they have vacant space?
This fits with what I’m seeing driving around Sorrento Valley/Sorrento Mesa.
It also fits what I see at my husbands workplace… they’ve downsized their office space (and head count) – returning 2/3’s of their square footage to the landlord. Other tenants in the office park have similarly downsized. The landlord is coming up with a series of short term leases for the space.
Over the year I’ve seen many tenants either negotiate lower rent or move to a new location for a substantial discount. Sometimes over 50% – they were being overcharged by the old landlord and found a much more eager landlord to take them.
The fact is commercial rents have grown exponentially for a lot of tenants over the years, and a correction is overdue.
Although many struggling businesses have had to close, this has also been and will continue to be an opportunity for new businesses to open. It’s ironically much easier to start a profitable new business now than a year ago.
SDBRI is absolutely correct in pointing out the history. Marginal rents were growing exponentially. If you locked in a rate in 1999 for a 10 year lease, you are probably going to be about even-stevens. If you signed a 5 year in 2004, you’re going to pay less. If you signed a 2 year in 2007, you can shop till you drop and find tons of better deals.
Having seen what commercial space was asking at the peak, I wondered how many business would be able to pay for the space and actually have earnings after that. Several of my friends actually closed up shop in 2007/2008 because rents were too high to turn a profit (something like 40-60% of net sales was going to rent).
Unfortunately for many commercial knife catchers (and something the above mentions) is that the overbuilding was massive. Those high of rents for that long gave everyone an aura of invincibility and there is so much available, it’s going to depress commercial rents for a LONG time, in my opinion. I think 2012 is a raving lunatic of an optimist. I’d suggest we’ll see peak rents back in 2015 or so. That’s a lot of commercial to reabsorb.
Of course, strong wage-price spiral inflation changes those predictions completely, though I don’t see that as likely.
Chuck Ponzi
They aren’t making anymore land!!!!!!!
The good news in commercial real estate (as I have posted before) is in retail. Countywide only 20,000sf of new space built this year, NOTHING under consturction, with a 6.2% vacancy–look around at other cities and you’ll see huge amounts of newly built vacant space in addition to all of the recently vacated space. In SD see activity is releasing recently vacated spaces–especially restaurants.
Sdbri,
Not sure that the weaker economy, demand, disposable income and credit availability doesn’t outweigh the lower rents available.
I think small and medium business is still in for a rough ride…unless you’ve invented a new snuggie.
20% less sales vs. 50% less rent. A new business like a crepe store turns a lot more profit now than if it opened in 2007 or 2008. It’s low cost an decent profit margin. For less trafficked areas, it’s the difference between losing money in 07 and making money in 09.
You don’t need to invent a single thing to start a business. Just copy Asia. Open an internet cafe, open a tapioca cafe, open a frozen yogurt, open a crepe store. Please help me, this is so hard.
Oh, I forgot to mention that as a new business you’ll contrast with existing businesses that may have 20% less sales but 100% same rent. The other key is to have zero competition for as long as possible.
Chuck Ponzi is spot on about it completely depending on when you signed your lease and for how long.
“The recovery period will likely begin at either the end of 2011 or early 2012 with office employment and net absorption levels returning to a positive trend.”
“This listing is special. Suzanne researched it…”
Slam. Flush…
Overbuilding of Office space isn’t nearly as big of a problem this time around, it was much worse during the .dot bust of 2001. The big problem with CRE right now is the amount of flipping of CRE at low cap rates that were based on high forever rising rents (the rising rents have become a fallacy with the vacancy rates). The other problem with CRE is that there is no emotional attachment. Either it has decent potential to cash flow and provide return or it gets defaulted on. In the CRE market nothing is selling and when something does sell it’s half off pricing. Imagine a neighborhood where there’s 50 properties on the market nothing has sold in over a year and then the first comp is 50% off the previous comp. What happens to the 49 other properties for sale?
It’s just a really bad situation and it gets even worse when you realize it’s pension funds that hold all of this overvalued commercial real estate and probably won’t ever be able to make good on their pension promises without massive tax increases to fund these losses.
“It’s a great time to be a tenant if you’re a steady, proven business with a good, solid financial statement,” Reid said. “There are some terrific deals to buy buildings and lease space.”
It gotta be that flawed realtor DNA.
What a joke.
“Oh, I forgot to mention that as a new business you’ll contrast with existing businesses”
And hence the disadvantage of being in California. I don’t honestly know of a soul, not one person, eager or really and willing to live in California.
“I’ll sure visit, but no way would I live there.”
Now if you ran a big business, how much talent do you lose because your employees don’t want to “room mate” in their 30’s to have sunshine?
Alas CA is losing competitive advantage, and this will probably reflect in commercial vacancy for some time, even in SD where supply is restricted.
He’s predicting a recovering in late 2010 but what will lead america out of this recession? Retailers ? Financial innovation ?
Anyone want a good laugh?I introduce the allmighty forcast:
http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20091007006240&newsLang=en
Check out High Bluff and El Camino Real in Carmel Valley.
It’s like a neutron bomb went off.
“I don’t honestly know of a soul, not one person, eager or really and willing to live in California.”
Not one person? You do now. I had and still have the choice to work anywhere in the world. London, Tokyo, New York, Austin, anywhere. I still choose SoCal. I know all the disadvantages – the taxes are a crime and the house prices eat up 1/2 an average person’s income. But speak for yourself, for my criteria nothing even comes close. Same can be said for millions, my parents refuse to move back even though it’s way more expensive here.
I travel Europe and Asia twice a year, and physically live two months of the year abroad. Great food, places to see, lots of fun. As for where to actually live and raise my kids though it’s no contest. Asia’s education system produces mindless zombies, and try running a business in Europe if you think it’s better there. Don’t even mention the rest of the US unless you’re joking.
Those mindless Zombies are poised to take over!!! It seems that the US is finally realizing this and starting to take our education (math and science)at least a bit more seriously–too little too late–time will tell!
“Don’t even mention the rest of the US unless you’re joking.”
And that is one of the worst parts of Southern California. This “I am better than ‘that’ place” attitude which seems to justify living here. I can only suspect you ain’t seen much of it to come to that kind of conclusion.
You won’t find a lot of people who agree with you that raising your kids in SoCal beats everywhere else.
However if this is home for you, then thats all that matters. I thought it would be for me, but my stay is temporary. However I am richer for the experience.