[caption id="attachment_19266" align="alignright" width="235" caption="Greg Moss"][/caption]
As the Great Recession continued deep into 2009, it proved another extremely challenging year.
In many respects it began as one of the most difficult markets in history to navigate and fully comprehend its magnitude due to the complexity of the economic crisis. Millions of vacant square feet flooded many of our markets in the first quarter of 2009, leading to severely deep levels of negative net absorption, while asking rates plummeted. The first quarter was seen as the worst performing in many markets since 2001.
One had to question, was this horrific trend going to continue or would things get better? Well, after the dismal first quarter, it would prove to be the latter as we saw the velocity at which space was being added on a net basis reduce substantially each subsequent quarter for the remainder of the year. Slowly, things were progressing ahead.
And by the fourth quarter, the level of negative net absorption became minimal in the bigger picture, while some markets even experienced moderate levels of positive absorption; some markets reported positive absorption beginning in the third quarter.
Before we continue forward, let’s take a brief look back at what occurred. A similar chapter read true across all product types in 2009. Vacancies advanced further upward, lease (and sale) demand remained historically soft and asking rates plummeted. The Bay Area Office market closed 2009 with a vacancy of 17.6 percent, up from 15.2 percent in 2008. It is now roughly 5 million square feet shy of its highest vacancy on record, 19.9 percent in the second quarter 2003. The average Bay Area asking rate dropped $0.55, from $3.11 at the close of 2008 to $2.56 per square foot full service.
In 2009, the Bay Area investment market recorded a total dollar volume (office, industrial, retail and multi-family) just under $3.3 billion. This amount was 54 percent less than 2008 and 91 percent less than the record amount transacted in 2007. The year-over-year monthly change in total dollar volume showed a flat-lining trend during the second half of 2009, indicating that we may have hit the bottom of the market.
The strength of our region is guided by its tremendous human, intellectual, investment and venture capital (constantly receiving the most funding nationwide); its highly educated work force; and its superior quality of life. The region boasts world-renowned industry leaders and trailblazing companies, many with strong ties across the globe.
Last year was a plunge. This will be a bottoming year. Next year will perhaps be an extension of the bottoming process. In 2010, much of the fear will subside and acceptance will set in. There is a peak in lease expirations in 2010. We see deal velocity improving across all sectors in 2010. We believe that activity will be driven either by pain or gain. Pain in that the sectors with the most pain (land, retail, office) will see deal flow, and the sectors with the most gain, as in least worst fundamentals and therefore best prospects of recovery, (apartments, industrial, manufacturing) will see deal flow.