Suburban Commercial Real Estate Rents Are Leveling Off
Suburban Commercial Real Estate Rents Are Leveling Off
Suburban Chicago commercial real estate prices are still declining amidst economic difficulties. Leasing trends, however, after a period of decline, remain relatively level.
Data from LoopNet shows suburban sale asking prices dipping below 2006 levels near price levels of the turn of the century (2000); and the trend line is still steeply down. This is likely due to an increase in commercial foreclosures and high vacancy rates, which put downward pressure on property values. There are a lot of underperforming properties out there and a large overall vacancy rate hovering around 16%. That trend leaves owners with few options: either subsidize the properties out of pocket, or if that option is not available, short sale or letting the property go back to the bank will follow. The last two alternatives push asking prices artificially lower. Even though all properties are not distressed, the majority of the properties that are selling are being bought well below market.
There is some good news though. Asking rents appear to be relatively level near 2006 rates. That leveling off will offer property owners a curb on declining values. With vacancy rates high, there is still work to do, but if rental face values stay even, owners will slowly regain the balance. The key will be to offer up front concessions as incentives and offset the average rent paid. The higher face rents will help keep the building NOI up after the concessions burn off.
The market has a long way to go, but owners have a lot to offer tenants if the lease is structured properly, and tenants have a lot to gain if they understand how to structure concessions and rent that benefits both themselves and the landlord.
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