Out of the woods?

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from David Slye
Executive Managing Director
Jones Lang LaSalle

Clubhouse conversation at our recent Bushwood Invitational golf event centered around market recovery. Although many executives I spoke with said that their company’s revenue is ahead of projection, they described a nagging uncertainty among tenants and investors.

This was evident in Jones Lang LaSalle’s recent Investor Sentiment Survey. When asked to describe their mood about the CRE landscape and business prospects, 76% of investors said conditions were either “mixed” or “challenging.” This response leads me to believe that others feel the same way I do.

Looking back to the local picture, our employment outlook has been only marginally better than the nation’s. However, we are finally starting to see job growth. It will take time to make a significant impact on the jobs lost from the recent downturn – and frankly, we never really recovered all the jobs lost from the 2001 recession.

The financial institutions have begun to free capital but buyers and sellers still struggle to close the bid-ask gap. Investors only seem interested in opposite ends of the spectrum: core trophy assets with high occupancy or distressed properties.

Leasing activity is off the floor but we still have a long way to go. Boston’s net absorption is positive for the first time since the end of 2007, and Greater Boston’s is in the black for the third consecutive quarter. Many tenants have left the sidelines to take advantage of low rents before they begin to rise, and landlords have been willing to look two years out to do deals that stabilize their buildings.

This trend, however, may be short lived as investors anchor their occupancy with “early renewals” and start believing that rental rates in the future will be better than what they can lease space for in today’s market. We look forward to meaningful job growth over the next 24 months with the hope that these “reach forward” deals have not tapped the market dry of tenants needing space in 2011-2012.

In golf vernacular we still have a difficult lie but there’s an opening between the trees and the green is in sight.

– David

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