August 1, 2009
RE: Monthly Letter
Dear Clients:
Before the advent of electric lights, coffee bars in McDonald’s, and wee-hours Will & Grace reruns, “early to bed, early to rise” wasn’t just a quaint prescription for health & wealth — it was a way of life. But now, when a late night of work or play — or waiting for your teenage to come home — is often followed by an early morning conference call, you need every trick in the book to stay energized and happy. Research shows that despite all of our improvements, the rate of happiness is still flat line. Pills are being popped by the billions, yet research also shows that a smile is still the surest way to achieve happiness.
Now three cheers for the USD index of leading economic indicators for
RETAIL
There has been a 75% decline in retail property transaction volume. The recession is causing many retail tenants to go out of business and leaving us far fewer replacements to fill the empty storefronts. Because of this, the countrywide vacancy rate has risen to 5.5% from 4% last year at this time. However,
OFFICE
Vacancy continues to rise (7 straight quarters). Countywide vacancy is 20%. New construction added nearly 400,000 square feet of space to the market (good timing, huh?). Fortunately, 25% of it was pre-leased, but that is still 300,000 of vacant space added to a declining market. Until we see job growth, there will not be a turnaround in the office market. 2011-2012 is our best guess. In the meantime, tenants are king. Be aggressive and creative in making deals!
INDUSTRIAL
The weak economy has hit the industrial market as well. Vacancies have risen from the mid 7’s to 9%. Like the other two sectors, we need to restore confidence to the
consumer and restore job growth so that manufacturing and distribution demand will grow again. This should start as early as 2010 but more likely 2011.
2009 and 2010 are going to be rebuilding years. Lease and sale deals are tougher to close. Deals take a little longer to close (which is why you need a pesky broker to keep bugging everybody about the details). The last year has been a very difficult period in real estate history. Not very good news if you started your “buy and hold” in 2007 but certainly works for you now as a buyer. It is not time to focus on when so much as what: What will be your angle in this new world?
I am excited about this marketplace because I believe we will see opportunities like we have never seen before. Keep your eyes open for:
- increasingly higher cap rates.
- property for sale below replacement cost.
- rents below market.
- Distressed sellers or owners
- locations with high barriers to entry.
Please know that we are out on the streets working tirelessly for you. Please let us know if you or your tenants or your friends are looking to lease or buy. With tenants and buyers “being king,” we are finding referrals from our clients to be one of our most powerful sources for leads.
We are entering a new era…one in which we will be competing with everyone, everywhere, every time. Makes me tired just thinking about it! Hope you enjoy this month’s story!
Regards,
Don
Don S. Zech
CDC Commercial, Inc.
Real Estate Services
ARE YOU TIRED?
We have run across some absolutely irrefutable statistics that show exactly why you are tired. And brother, it’s no wonder you’re tired either. There aren’t as many people actually working as you may have thought, at least not according to the survey recently completed.
The population of this country is 275 million, 95 million over 60 years of age, which leaves 180 million to do the work. People under 21 years of age total 100 million, which leaves 80 million to do the work.
There are 50 million who are employed by the government, which leaves 30 million to do the work. Twelve million are in the Armed Forces, security, and police force which leaves 18 million to do the work. Deduct 15,549,000, the number in state and city offices, leaving 2,451,000 to do the work. There are 188,000 in hospitals, insane asylums, etc., so that leaves 2,263,000 to do the work.
Now it may interest you to know that there are 2,262,998 people in jail, so that leaves just 2 people to carry the load. That’s you and me. And I don’t know about you, but I’m tired!
