The national economy continues to show contradictory signs of anemic stabilization. The stock market is up but the job market is down. Retail sales are up but sales tax receipts remain low. Housing sales are up but pricing is down. The National commercial office market is also contradictory as evidenced by vacancy rates remaining at 12.9% for the 3rd straight quarter although absorption rates (the measure of leased space versus new space) remained positive for the 2nd quarter in a row. Even the average asking rent has dropped by only -0.51% to $21.61 in the 3rd quarter from $21.72 in the 2nd quarter.
The Long Island office vacancy rate has followed suit by remaining at 9.9% for the fourth quarter in a row while absorption has also been positive for 4 quarters in a row. The average rental rate has also dropped by -0.38%, going from $26.08 to $25.98 PSF.
I believe the important fact of this analysis is the continued positive absorption. This means space is being leased, albeit slowly, but no new space is coming on the market. Clearly, developers do not want to take a chance on new construction during this weak economy. The problem for tenants is that with space continuously being absorbed and no new space coming on the market, the amount of available space is going to diminish in spite of the bad economy. As this trend continues, the laws of supply and demand will eventually kick in driving UP rental rates. Even if the economy remains soft and the job market remains weak, rental rates will go up!
Bottom line is companies should not hesitate to take advantage of today’s soft market. Renegotiate your lease or seek an alternative location while the market remains in your favor. Today’s tenant’s market will not last forever.
– Ross Selinger