Brokers and owners of North Bay commercial real estate were happy to see the departure of 2009, with its rising vacancy and unemployment rates, slumping property values and challenging finance market. But as the year came to a close, there were at least some hopeful signs that 2010 will show improvement.
“It’s a good time to be a tenant and a buyer,” said Annette Cooper in Keegan & Coppin’s Santa Rosa office. However, getting financing for operations and property acquisitions remains difficult.
Unemployment rates, a key leading indicator for commercial real estate demand, remained at high levels – above 10 percent for all North Bay counties except for Marin County’s best-in-the-state 8.1 percent – as 2009 was ending. Absorption of commercial space in Napa, Sonoma and Marin counties was expected to be negative for the year.
“We’ve been bouncing along the bottom all this year,” said Al Coppin, president of brokerage Keegan & Coppin. “Some companies that have some confidence are considering moves in the first quarter.”
For instance, in Petaluma, which has the highest office and industrial vacancy rates of major North Bay submarkets, about 411,000 square feet of industrial space deals were in progress at the end of the year, according to Trevor Buck in NAI BT Commercial’s San Rafael office.
Other commercial property brokers also noted an unusual increase in interest in leasing larger office and industrial spaces in the last two months of 2009. “Big box” retail spaces have been tougher to market, though some interest in moving forward with deals is expected if year-end sales are stronger than expected, according to Tom Laugero of Keegan & Coppin.
Most of the activity earlier in the year was from tenants comparing their spaces with what the market would offer, according to Paul Schwartz in NAI BT Commercial’s Santa Rosa office. “Recently, I’ve seen transactions on new locations. It’s a positive sign and shows there are credible leasing opportunities out there and some companies are making the move.”
Brian Eisberg in Orion Partners’ San Rafael office said the interest among companies in early 2009 to find smaller spaces as they trim their employee counts started to change as the year ended. The ability to find higher-quality space for less rent has accelerated, he said.
“Earlier in the year it was a flight from quality to value, and now we’re starting to see a return to quality,” he said.
Though there was increased interest in expansion options at the end of 2009, some large deals were taking longer complete than in previous years, brokers noted.
Mr. Schwartz attributed the expanded deliberation time to greater internal analyses of a greater number of properties on the market and more time spent negotiating with multiple owners.
Rents property owners were asking for at year-end appeared to have stabilized after falling almost as much as commercial property values, which declined by 25 percent to 50 percent in the past two years. For example, retail lease rates for top malls are being quoted 25 percent below those of two years ago, and many retail asking rents are 40 percent lower, according to Mr. Laugero.