Market Update – Q4 2008

untitled-1Deceleration.  Real estate industry investors and professionals expect financial and real estate markets in the United States to bottom in 2009 and flounder for much of 2010, with ongoing drops in property values, more foreclosures and delinquencies, and a limping economy that will continue to crimp property cash flows, according to the Emerging Trends in Real Estate 2009 Report.

Losses are projected in real estate values from their 2007 peaks.  The lack of real estate financing will prevent us from finding the bottom of the market.   However, the Central Los Angeles industrial real estate market is not expected to suffer as much as other industrial markets not only in Southern California but also across the country.

Despite an increase in vacancy rate,  the Central Los Angeles industrial real estate submarket continues to maintain the lowest vacancy rates for the nation, despite a decline in demand.  Other commercial sectors such as multi-family, office and retail will suffer a far worse fate in the coming 12-24 months.  We do expect continued softening in values as demand from buyers and tenants has fallen off substantially.  Many companies report revenue drops in the range of 30 to 40 percent for 2008.  More properties continue to become available providing a better selection for those who need such space.

The consensus is that the problems which have plagued the second half of 2008 will persist, and possibly worsen into 2009. Consumers have significantly scaled back spending and the reverberations are filtering down all the way to the Los Angeles industrial market as retailers cut their orders for merchandise that once filled warehouse distribution centers to capacity.

The impact of lagging activity will show up in the asking rents and in the increasing levels of available sublease space, especially in industrial markets along the ports’ distribution path. What is unique about thisdownturn is the increase in available warehouse/distribution sublease space. Asking rates will dip as vacancy increases moderately. However the largest concern facing the market in the coming year is how long the national downturn will last and how widespread its effects will be.

As economic specialists scratch their heads in Washington, the rest of the nation and world is forced to wait and see. Because of the overarching economic issues, vacancy will increase a half point and absorption will remain negative in 2009, as rents see a 6-8 percent decrease.

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