Tenants and the Recession

The National Bureau of Economic Research announced that the recession ended and economic recovery began in June 2009, but according to CRE service providers economic conditions for most American tenants are still in the pre-June 2009 cycle. CoStar has interviewed a group of real estate professionals taking a closer look at the divide between overall economic conditions and real estate needs, noting that it takes longer for businesses to see a need to expand into more space post-recession.

"Many mid-size and smaller companies are afraid of the possibility of a double dip recession. They are unconvinced that the recession is really over, despite the statements by several so-called economic pundits that the it "technically" ended in June 2009," said Howard Applebaum, president of Corporate America Realty & Advisors, a tenant rep firm in Rutherford, NJ. "Until we see greater access to financial liquidity and greater financial leverage for business and real estate borrowings, companies will remain conservative and avoid adding staff. What must be feared here is that without the capability of loosening the credit restrictions that banks have placed, it can lead to further staff reductions as companies that do not have access to "Wall Street" capital will burn through their cash holdings."

"Companies in the past two to three years have downsized and extended their leases; these companies do not have excess space," said Scott Abernethy, senior vice president of Cassidy Turley in Cincinnati, OH, noting that 90% of the companies they talk to are not hiring. "However, many firms with leases farther out in the future have excess space that they can't unload. If the economy improves, they feel they can backfill that excess."

"My feeling is true recovery will not occur until unemployment and sentiment/confidence returns,"said Kenneth W. Colwell, senior leasing and sales associate of Paragon Real Estate Group in San Francisco. "Only users who are recession-proof will expand or relocate, that includes medical and government, with startups looking for rock bottom subleases deals."

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