Commercial Real Estate Begins Long, Hard Slog Uphill
Dana Rubinstein Oct. 5, 2010, 12:36 p.m.
The Journal examines the state of the national office market in today’s newspaper. The prognosis: tepid. Asking rents are, in some places, stabilizing (not rising, just stabilizing). Investors like Mort Zuckerman are once again investing. And while the national vacancy rate is still rising, it’s doing so more slowly.
Which is to say, commercial real estate has got a long, hard slog ahead of it:
The turmoil hitting commercial real estate is the worst since the early 1990s, when the sector helped drag the economy into recession largely due to overbuilding. This time around, the problem is demand. Millions of job losses have eliminated the need for hundreds of millions of square feet of office space.
In addition to the 135 million square feet of space that businesses have already given up, many offices around the country are filled with the vacant desks of laid-off workers. That means that even when companies start hiring again, they won’t need more office space right away.
When you factor in the impact of technology on demand for office space, the picture looks even cloudier:
Another factor in what’s likely to be a slow recovery: changes in workplace design that require far fewer square feet of office space per employee.
In San Francisco, for example, accounting giant Deloitte recently inked a deal that reduces the square footage of its San Francisco headquarters by about 40%, even though the company plans to expand its head count in the city by 10% over the next year.
Read the whole analysis here.