Leasing Activity Between Recession and Recovery

At the intersection of recession and recovery is where we lie right now. That was the theme of a webcast presented by Jones Lang LaSalle.

March 8, 2010
By Allison Landa, News Editor

Courtesy Flickr Creative Commons user PinkMoose

At the intersection of recession and recovery is where we lie right now. That was the theme of a webcast presented by Jones Lang LaSalle.

That webcast, “State of the Market: Occupier Perspectives”, posits that the recession is over, but expansion is still fragile as government support fades out this year. Among the firm’s major findings: gross domestic product was driven by inventory change in the fourth quarter and there is a risk of fading recovery in 2010; labor markets are stabilizing, but are not yet out of the woods; and U.S. vacancy levels will continue to rise into 2010, but at slower levels.

“The vacancy level is really artificially low, the reason being that so many companies that have laid off people haven’t put space back on the market,” JLL managing director of Los Angeles brokerage Whitley Collins told CPE. “We’re seeing a lot of companies now that have laid people off in 2009 starting to address (that space).”

Collins said increasing vacancy rates are underwritten by this shadow space, or space that is empty but not on the leasing market. Additionally, general space inefficiencies contribute to higher vacancy, but Collins said these get purged when companies decide to move.

“There’s not a company out there that’s going to move and take more space per person,” he said. “Everybody’s taking less space.”

Since commercial real estate tends to lag the overall economy by six months, Collins predicts that it will be 12 to 18 months before recovery. “It takes time,” he said.

However, JLL did find that tenants are growing more certain of the future, and leasing activity pressed higher in both the third and fourth quarters of 2009. Sublease space levels also dropped for the first time in two years as leasing activity grew on discounted space, and though market rents are down 15 percent from highs in 2008, net effective rents in the primary market are starting to stabilize.

Buoyed by industrial and government activity, respectively, Pittsburgh and Washington, D.C. were characterized as stabilizing markets, while markets including Atlanta, Detroit, Miami, Phoenix, Charlotte and Tampa were still characterized as falling.