So, where are we?

I have been an active broker in the commercial and industrial real estate market for almost 30 years. How time has flown! I have witnessed bull markets and bear markets and I have watched as money has been made and lost. What doesn’t surprise me today is that once again we have broken away from fundamentals and strayed in areas that history has told us will result in pain.

So, where are we? Quite frankly, I think we have been in a recession for the past year and I think it is going to get worse before it gets better! Just my opinion!

Let’s look at a couple of fundamental facts about the market. For starters, I want to make sure my readers understand that I focus on two primary markets which are Bristol and Norfolk Counties of Massachusetts. Although these two markets are only a subset of the whole market, they represent a large population and real estate market. For starters, the housing market has been hit hard. This has to be a very important part of analyzing any market since it is what tells us what is happening in the economy. Housing prices have dropped as much as 30% and I suspect the values will continue to drop further in 2008 and maybe into 2009. I don’t think anyone can tell us right now just how far this market will go down. For those who sold their houses prior to 2005, consider your selves lucky! For those trying to sell your houses figure out if you can hold on or grab the next offer that shows up. Not easy words to tell people at this time! The availability of financing let alone the credit crunch caused by greedy bankers and unethical financiers will cost you and others dearly!

Then, let’s look at the commercial and industrial tenant market. By mid year there was less than 1% absorption of space in these two counties. I suspect that when I complete the year end report sometime in January the number will not be much different. This tells you that companies are not growing which means they are not hiring. In fact, all you need to do is read the papers and you will see that companies are reducing employees in an effort to reduce over head and stay in business. Furthermore, in this same market at last count there were more than 300 office, industrial and flex buildings on the market for sale. Most of these buildings were either vacant or less than 50% occupied and they were priced at close to 30% above current market value. That means, they have not reacted to the down turn in the economy let alone the market. I  have found some very creative ways to help my clients sell their buildings and I can help you, too!

How do I support these numbers? Simple! Investor dollars look for a certain rate of return based on cash flow and risk. When investors see the absorption of space at close to zero for a certain period of time, they come to the following conclusions. First, there is no demand which means there is no real projected future cash flow.  No cash flow means no return on equity! Second, they see escalating operating costs which they will need to absorb reducing the future return on equity the longer the property stays vacant. No smart investor in their right mind is going to make this type of investment. Would you?

What about tenants? Before a tenant goes out into the market and looks for new space, I suggest they do the following. First, call three moving companies and get quotes on what it is going to cost to move your company. Next, get a cost estimate on redoing all your stationary, brochures and marketing materials and anything related to your move. I suspect that once you have determined the cost of a move, you will have a negotiable cost that you can use with your current landlord or future landlord. Since the availability of space is better than ever, why not first determine the value of your move prior to looking for alternative space. Once you know this, contact me and I will show you all the competing properties that meet your needs and then negotiate apples to apples. Amazing how many companies don’t understand or realize that the cost of moving in a tenant market has value. You may end up staying in your current location but, you will have a better deal and your landlord will thank you for staying!

Here is where I see it! We have 1-2 years in front of us that will be hard to say the least. I believe there is an incredible amount of opportunity for tenants and owners in this market. It comes down to the willingness to be creative and assertive. We are a country who is reactive and not proactive. You decide! It is the holiday season again and all are out shopping with limited cash. I suggest that when you buy this year, you buy what is made in America and not China or Europe. Force companies back to America creating jobs and growth opportunities. Tell the world that we appreciate their interest in our money but that trade needs to be fair. Containers coming into this country are full and those leaving are empty. You have a choice! Don’t buy a foreign car buy the best energy efficient American car and tell the American auto manufacturers that you don’t want anything else! Consider turning your heat down to 50 degrees and changing your light bulbs to energy efficient bulbs reducing your demand on fossil fuels. I cannot tell you if there is global warming going on any more than anyone else can. So be proactive and not reactive. This concept applies to everything including commercial and industrial real estate regardless of being a tenant or an investor. Those who are willing to be proactive and creative will get theough this market and fair well when the market begins the up swing.

You can reach me at 617-594-9055. You have nothing to lose by discussing proactive solutions and maybe everything to gain.

Samuel P. Thomas, CCIM
Managing Director
Continental Realty Advisors, Inc.
samthomas@continentalrealtyadvisorsinc.com
www.continentalrealtyadvisorsinc.com