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A Tenants' Market - 6th December, 2008. ET Realty - Economic Times

A tenants’ market

A SURVEY OF PERCEPTIONS AMONG OFFICE REALTORS INDICATES THAT THE DOWNTURN IN THE US PROPERTY MARKET IS LIKELY TO CONTINUE FOR A WHILE

SANJEET NARAIN

The downturn in the US market is likely to continue for a while, according to an index based on perceptions of commercial real estate professionals.
The Society of Industrial and Office Realtors (SIOR, www.sior.com) index for office lost 8.5 points from last quarter, leaving it almost 41 points from equilibrium.
SIOR, headquartered in Washington D.C., is a global professional organisation that certifies commercial real estate service providers with the exclusive SIOR designation. Individuals who earn their SIOR adhere to the highest levels of accountability and ethical standards.
Only the industry's top professionals qualify for the SIOR designation. Today, there are more than 3,200 SIOR members in 590 markets in 25 countries. October 2008 - the Third Quarter 2008 SIOR Commercial Real Estate Index, compiled by SIOR in association with the National Association of Realtors (NAR), highlights the accuracy of the SIOR Index as it reflects the effect the overall economy has on Industrial and Office real estate market conditions across the United States.
The national Index, which measures 10 variables pertinent to the performance of U.S. industrial and office markets,dropped for a seventh straight quarter to an overall total of 66.4 points, 10 points lower than Second Quarter's results. This point drop placed it 33.6 points below the 100 point criteria that represents a balanced office and industrial marketplace and 53.3 points below its record high in spring 2006.
The SIOR Commercial Real Estate Index is a diffusion index where a score of 100 indicates markets in balance. A score of 66.4 reflects conditions that are significantly less favourable for landlords and sellers, but excellent for tenants and purchasers.
SIOR commercial real estate professionals provided their views on Third Quarter 2008 market conditions in their respective markets in an October survey.
Not unexpectedly considering current economic conditions, 93 per cent of SIOR members report that their local markets are feeling the impact of the decline in the national economy. Eighty-two per cent of respondents report that leasing activity is down from historic levels.
Market fundamentals have been clearly impacted as 61 per cent of respondents feel that vacancy levels are higher than normal. Concessions benefiting tenants are riding above normal indicating a"tenant's market" according to 64 per cent of respondents: 10 per cent of them indicating deep discounts. Thirty-three per cent of respondents indicated that there was virtually no new construction going on in their marketplace and according to 74 per cent of respondents, construction in general is down. Sixty-eight per cent of respondents predict a 1-15 per cent decline in activity for Fourth Quarter 2008 - a clear indication that concerns about where the economy is heading are impacting the commercial real estate business - and will continue to do so.
This is what SIOR had to say about other micro-markets,
Industrial Market
The Industrial Market Index, at 59 points, has lost its 8.6 point Second Quarter lead over the office market and now trails it by .3 points.
Regional Breakdown
The short-term market outlook looks bleak according to SIORs in the Northeast who scored 71.9 points. SIORs in the Northeast report the strongest negative impact on their local markets by the national economy. However, they do feel that their investment markets are in balance.
The Mid-West tallied a score of 69.2 this quarter, gladly relinquishing its dubious distinction of having the lowest Index score to the West. Investment prices are lowest in the Midwest and Midwest respondents feel more strongly than other regions that the local economy is having a negative impact on their market conditions.
Respondents from the South, with an Index score of 78.2, were the most optimistic, which might have something to do with the fact that they report leasing activity closer to one year ago levels, concessions closer to balance, and they continue to see a balanced investment market.
The West, weighing in with an Index score of 65.6 points, is seeing the lowest levels of leasing and development activity, the highest vacancy rate, the largest decline in asking rents, and moderate to deep tenant concessions.
focal point
SIOR commercial real estate professionals provided their views on Third Quarter 2008 market conditions in their respective markets in an October survey
Ninety-three per cent of SIOR members report that their local markets are feeling the impact of the decline in the national economy
Concessions benefiting tenants are riding above normal, indicating a "tenants market" supply
SANJEET NARAIN IS MANAGING DIRECTOR, NARAINS CORP. HE IS THE FIRST SIOR MEMBER FROM INDIA