The Peninsula Industrial Pros

Your Commercial Real Estate Source in the San Francisco Bay Area

Tenants Continue To Rule the Market

Confirmation of Slowed Job Growth Likely to Keep Landlords Aggressive on Lease Deals

By Mark Heschmeyer
This week’s disappointing job growth numbers make it abundantly clear that it’s still a tenants’ market out there and no amount of aspiring to the contrary will make it easier for landlords fighting to attract and retain them.

The job news “is an obstacle and a cautionary line creating uncertainty in the short-term outlook,” said Carl Conceller, principal of NAI Desco in St. Louis, MO. “Landlords are keenly aware of the limited tenants in the market place and the need to maintain occupancy in a highly competitive market. Landlords will continue to be aggressive in structuring leases to capture tenants as early as possible, while blocking them from the competition.”

For the record, here’s a summary of monthly jobs number released this past week by the U.S. Department of Labor: Total nonfarm payroll employment grew by just 69,000 jobs; following 77,000 new jobs in April. By comparison, the average monthly employment gain in the first quarter of the year was 226,000.

In May, employment rose in health care, transportation and warehousing, and wholesale trade -basically the industrial sector. While construction, accounting and bookkeeping services, in services to buildings and dwellings and professional and business services lost jobs – basically the office sector.

“The report was disappointing, but not unexpected considering the negative economic news of late regarding the European debt and its potential impact on the U.S. economy,” Conceller said. “The report, in conjunction with the European debt crisis, has obviously disrupted markets and caused uncertainty among U.S. businesses.”

Larry Hausman, senior associate of Marcus & Millichap in Louisville, KY, said that if landlords were smart they would make whatever deals they can get done and still make a profit.

The job numbers don’t make prospects for the investment market very attractive either, Hausman said.

“Investors are going to shove their hands even deeper into their pockets, choosing to take their licks against inflation while staying in cash a while longer,” he said. “There will be fewer buyers until Europe stabilizes and more than 125,000 new jobs are created each month (what is needed to break even after population growth).”

To read entire CoStar article, click here.
Although this is a national report, there are a lot of parallels to our local San Francisco Bay Area market.  We are still seeing concessions by landlords to attract, and keep, tenants including free rent, reduced rent, and tenant improvements.  There also seems to be a real dichotomy in the market with the have’s and have not’s going in different directions.  For every manufacturer or importer that is looking for more space to accommodate their expanding business, there is another looking to downgrade due to dwindling sales.  It will be interesting to see how the remainder of 2012 will turn out especially considering the upcoming elections and international turmoil.
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This entry was posted on June 7, 2012 by in In the News, Industrial, Market Updates, National and tagged , .
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