We are seeing changes beginning to happen in the thinking and strategies of our clients:
Landlords are less willing to drop their rents and to retain poor paying tenants. In the darkest part of the market, since was no leasing activity, a poor tenant was considered better than no tenant. This is no longer true and landlords are taking more chances. Leasing activity was strong at end of 2011 and most brokers are busy. It is a slightly better market and that is enough margin to take a risk. Rents are still low but more tenants are looking for space.
Many manufacturing companies are completing a fundamental reorganization of their production and storage needs. Those with the resources have replaced manpower with automation and robots. They have also shifted warehousing needs to their suppliers. For instance corrugated packaging and raw materials are delivered when needed. Counter-intuitively, these growing companies actually need less, but better functional space. After several years of trying, these companies have gotten things right.
With the greatest fears behind us, at least here in the U.S., I am seeing a return to deals that blew up over the past few years. One Buyer with a new equity partner is trying to resurrect a deal that collapsed in 2009. A Seller sees the investment market starting to improve for “B” product and is back looking for Buyers. In a third case, management has finally agreed to take some risk and is looking for land to purchase. I’m not sure any of these deals will come to fruition but in all these cases, we are back in the market (to some degree).
Property is selling. Not always quickly. And still not at peak prices. But sale prices have come back much better than lease rates. Still, owners need to do the hard work and be proactive. They need to spend money on refurbishment. Solve all the environmental problems. Tear down improvements that need removal. Get entitlements to occupy the property. But if the property is market-ready, it will sell at a relatively generous price.
I’m also seeing more permanent moves as in a major relocation or a fundamental shift of real estate goals. While short term decisions still persist, more businesses are willing to consider long term commitments. This is reflective of more confidence. And why not? Low interest rates and low prices coupled with improving business conditions is an ideal time to lock up space. It’s hard to make a mistake about paying too much when inflation adjusted rents are half what they were twenty years ago.
There is plenty of worry and many things can go wrong. Over the past few years many companies have shed debt, reorganized their production, and returned to lean. They are now willing to take a chance at growing. Slightly better financing and a bottom in real estate values are making their decisions easier.