Tenants seeking commercial space will have the upper hand in 2012 – except in Boston and other gateway cities, according to a report from Cresa, which exclusively represents tenants.
The report from the firm, formerly CresaPartners, states that a moderately expanding economy will bring few surprises in 2012 in commercial real estate. Many parts of the nation are still a tenant’s market due to double-digit vacancies and tepid demand because of sluggish job growth.
However, cities like Boston, San Francisco, New York and Washington, D.C. will be the exceptions and account for most of the growth this year, according to Cresa.
"The economy we see today is the economy we’re likely to see throughout 2012," said CEO Bill Goade. "While we can expect some expansion, there will continue to be a high degree of uncertainty as a result of debt issues in Europe and slow job growth. Business leaders are expected to remain highly cautious and unlikely to expand their real estate footprints unless compelled to do so."
Cresa believes that office and industrial tenants in the non-gateway cities mentioned will continue to benefit from a relatively benign leasing market for all of 2012 with most cities in the U.S. still characterized by double-digit vacancies. Additionally, office and industrial rents will likely flat-line for all of 2012 with limited exceptions in the gateway cities mentioned.
In those cities, there is currently no upward push in rents, with most landlords content to maintain occupancies. Despite a moderate move down in office and industrial vacancies of less than one percent, rents will spend another year treading water. Vacancies are still too high to push rents higher.
Commodity markets are unlikely to see much growth in 2012. Growth will concentrate in gateway cities such as New York, Boston, Washington D.C., Miami, Los Angeles, San Francisco and Seattle, according to Cresa.
Because growing revenue is so difficult in a slow growth economic environment, an overriding trend will be a further push to reduce all costs, including real estate, in an effort to boost profits. Technology and social media will be key sources of growth along with education and healthcare. Beyond these limited sectors of the economy, few will be in growth mode.
