2011 has been touted the year for recovery for Commercial Real Estate. Perhaps, depending on how you would define recovery.
2010 showed a heavy increase in the number of commercial real estate transactions over 2009 and yet some firms are reporting that 2010 was a much more difficult year than 2009. For leasing, the reason for this seems to be that the length of the lease terms were down as was the average price paid AND average amount of space leased. The net effect would be that while the number of transactions was up, the total value of those transactions remained low. For sales, selling prices were just lower partially because we began to see more of the Short Sale / REO phenomenum for commercial property.
Looking ahead to 2011, the average number of transactions has slowed again. In the mean time, the amount of inventory has increased nearly 10% in the last few months. Pulling out my old economics text, it would seem to me that these are signs of decrease in demand AND also increase in supply. Both of these factors tend to deflate prices.
So, at least for the foreseeable future, I expect these trends to continue. Prices will have downward pressure and while prices are declining, lessees will be reluctant to sign long term commitments. We are still having prospects ask for short term leases which landlords would not have considered 2 or 3 years ago. In fact, one colleague reported an inquiry yesterday, where the prospect wondered if they could lease by the day or perhaps even the hour.
Part of a recovery is the correction phase and we seem to still be in the correction phase. As always the recovery will follow but I am afraid that there is still going to be some pain for Sellers and Lessors for a while.
Have a great day.
David
David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY 40299
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