During my travels this past month, I have been speaking to a number of professionals that have all agreed with me that during what is typically the busy season for commercial real estate transaction, activity is still moving extremely slowly! It is not to say that deals are not happening, however, most of the deal activity tends to be lease transactions due to the fact that banks are still proceeding with extreme caution, and your credit must be exceptional in order to take advantage of borrowing money today for commercial transactions. And most of the lease transactions today are typical of renewals, early renewals which Tenants are taking advantage of; Tenants have some leverage to renegotiate favorable terms and in some cases, take advantage of slight rental reductions. The savvy Landlords will do this all day long knowing that with so much vacant space on the market, coupled with decreasing rental rates, they are much better off keeping their existing tenancies and maintain long-term relationships with their tenants.

In my opinion, the balance of 2009 is not going to be very active. Property owners have yet to come to terms with the fact that if they are trying to sell a building, the market will NOT bear what they feel their property is worth. I foresee things getting worse before they get better and property owners that hold out on making deals at today’s market prices, will only be hurt further over the next 6 to 12 months when the next opportunity comes their way and they are forced to accept a deal that is much less favorable than today! I expect commercial rates to eventually increase over the next year and a half and when this happens, there will be further negative effects on pricing.

It would be my recommendation to property owners to do what is necessary to make a deal when the opportunity presents itself because you do not know when the next opportunity is going to come around! I have said this before and I will say this again, pricing is merely determined based upon supply and demand. The supply continues to rise, and demand has been extremely weak! Therefore, it should be of no surprise that deals being done today are at lower levels than seen over the past several years!

Commercial Real Estate lags behind the residential market and we have seen a depressed residential market for the past three years while commercial has been on the downward over the past year! If you want to have a good indication of the light beginning to shine at the end of the tunnel, focus your attention on the residential market because that market will clearly begin to see signs of improvement long before the commercial marketplace follows suit!

I hope you found my thoughts this month somewhat interesting and I would be happy to further a conversation with anyone who wishes to do so. These articles will be archived and found on a website that I am currently having developed. Furthermore, the website will be designed as a place for blogging where you will be able to follow up with any comments you may have to mine and begin a dialogue with other people with similar interest. More to follow in the coming months so stay tuned and enjoy your summer!

I may be reached at my office or via email at dlizzack@naihanson.com for any further discussion.