Loopnet's recent poll mirrors what most of the commercial real estate pundits are saying that we won't see much improvement in the commercial real estate market until 2011. Commercial real estate almost always lags behind employment numbers.

"More than 1,000 LoopNet members completed our poll on the Q4 commercial real estate market. Sentiment has turned more pessimistic since the Q3 survey, with 46% of respondents expecting a rebound in transactions to wait until 2011 or beyond, compared to 1/3 in our last survey. Still, the glass half full view notes that over half are still expecting a 2010 recovery. Get more detailed results, including expectations for pricing and the major obstacles that are standing in the way of a recovery on our blog."

Also from their blog:
"Nearly 1 in 5 are expecting to wait until 2012 to see a recovery."

More information from a previous post.

A couple of different reports have come out this month related to the 3rd Quarter office vacancy rate nationwide. They do not match.  The vacancy rate according to these reports is between 13% and 16.5%. Quite a big difference.  Neither noted whether sublease space was considered or what class of space was included. Bottom line is that you can't always take these number at face value.

From the Money Times, "According to real estate research firm Reis Inc, the U.S. office vacancy rate touched a five-year high in the third quarter. The national vacancy rate stood at 16.5 percent, 0.6 percentage higher than the previous quarter.

The dismal vacancy rate
The present vacancy rate is 2.3 percentage points higher than the vacancy rate in the comparative period last year. Thus the gains made during the commercial real estate boom have been washed away.

"So in seven quarters, the current recession has almost undone all additions to occupied space that occurred during the years when office rents peaked," Calanog said.

The office vacancy rate increased in 72 of the 79 primary metropolitan areas, up from 66 primary metropolitan areas that witnessed an increase in the vacancy rate last quarter."

From CoStar "Vacancy is continuing to rise in most major office markets around the nation. According to a third quarter market report produced by CoStar, overall vacancy in the United State climbed to 13 percent, which was an increase of 40 basis points from the second quarter’s vacancy of 12.6 percent.

Year-to-date statistics showed that the nation has seen negative absorption of 48.2 million square feet with 38 of the 63 major office markets tracked by CoStar having posted negative absorption during the third quarter. CoStar also reported central business district vacancy climbed to 11.1 percent from 10.7 percent in the second quarter. Suburban vacancy also grew to 13.6 percent, up from 13.2 percent in the second quarter."

Federal Reserve Beige Book Summary
"Reports on commercial real estate markets indicated that demand for space remained weak and that construction continued to decline in all Districts. Atlanta, Philadelphia, Richmond, and San Francisco reported that vacancy rates increased, while rates held steady in the Boston and Kansas City Districts and were mixed in New York. Boston, Dallas, Kansas City, Philadelphia, and Richmond commented that the demand for space remained weak. Commercial rents declined according to Boston, Chicago, New York, Philadelphia, and Richmond. Rent concessions were reported in the Richmond and San Francisco markets, and Richmond noted that some landlords had postponed property improvements in an effort to conserve cash. Construction remained at very low levels, with modest improvements noted in public construction in the Chicago, Cleveland, and Minneapolis Districts."

OfficeFinder does not expect much improvement in occupancy until the employment figures turn very positive and positive office absorption can take place again.  We are hoping to see some improvements by the middle of 2011.

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For more information, visit www.OfficeFinder.com.

According to Loopnet "Commercial property prices, as measured by the Moody's/Real Commercial Property Price Indices, or CPPI, are now 40.6% down from their October 2007 peaks.

The all property-type index fell 3% in August to 114.06, which is down 32.8% from a year ago.

The national office index value actually increased in the second quarter by 4.1% from the first quarter to 128.96. But it's down 27.4% from two years ago.

Each of the remaining property sectors - industrial, multifamily and retail - saw declines in the second quarter when compared to the first. Industrial values were down a whopping 20.4% from the first quarter to 131.3; multifamily was down 16.3% to 131.93, and retail was down 7.9% to 138.3."

Chart Source: Real Capital Analytics

What does all this mean to the office tenant? According to the report, Landlords have lost over 27% of the value of their buildings over the past 2 years.  As I mentioned in a previous post, it is imperative for the prospective tenant to know what the financial situation is for the building that they are considering occupying. An average loss in value of over 27% means that some have lost more while other less. This is a situation that can be compared to that of residential short sale, where the value of the building is less than the mortgage outstanding. Many owners just walk away in these situations and it can happen with office buildings as well.

The key for the prospective tenant is to make sure that they have a non-disturbance clause in their lease agreed to by the Lender, not just the Landlord. The last thing you want to have happen is to be evicted without notice. Tenants and prospective Tenants need to know what is going on with building financing.  It is not always easy to find out. This is another good reason to work with a tenant representaive who knows your market.

Over the past year the office space industry, OfficeFinder included, has seen a significant increase in the number of businesses looking for  virtual office space. Estimates are anywhere from  30% to 50% more than during the same period last year. Much of it is believed to be related to the economy. In particular, both businesses looking to save money and unemployed professionals setting up their own low ovewrhead home based business. A virtual office allows a business the opportunity to cut costs while maintaining a profession business image at a prestigious business address. While no office space is actually rented, most programs do allow virtual office clients to rent office or conference rooms on an as needed basis for a discounted price. The price range for a virtual office is usually between $60 and $300 perr month depending on the services used and the market.

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