If there’s an economic recovery, it sure hasn’t hit commercial real estate yet. According to the LA Times, vacancies for office space in “Los Angeles, Orange, San Bernardino and Riverside counties rose to nearly 20% from 17% a year earlier, while average asking rents dropped to $2.37 a square foot per month from $2.52.” Worst hit is the Inland Empire, where vacancies have reached 25%.
The down market has created some good opportunities for companies wanting to sign new leases, but cheaper rents haven’t translated into widespread demand, as the LA Times reports:
The persistently soft market has created opportunities for tenant businesses to sign some of the cheapest leases available in several years. The pace of deals has picked up a bit, brokers said, but many companies are still carefully husbanding their finances and avoiding long-term rental commitments.
Several media outlets have reported recently on the phenomenon of businesses “husbanding” finances. From the Washington Post:
Nonfinancial companies are sitting on $1.8 trillion in cash, roughly one-quarter more than at the beginning of the recession. And as several major firms report impressive earnings this week, the money continues to flow into firms’ coffers.
Yet all the good news from big business hasn’t translated into much promise for jobless Americans, leading many to wonder: If corporations are sitting on so much money, why aren’t they hiring more workers?
So why are companies hoarding cash and being so reluctant to hire workers and enter into new leases? The answer is uncertainty. With the economy appearing to be headed into the second down-leg of a double-dip recession, a federal government growing increasingly involved in the private economy, and the Bush tax cuts expiring at the end of the year, companies are increasingly uncertain about what the future holds. With that uncertainty comes a reluctance to invest capital that could be needed to sustain a company through a prolonged downturn. Until companies can feel reasonably secure about the future, they will continue to be reluctant to hire workers and enter into new long-term leases.
-CH
Need to sell a house? We buy houses for cash, even if you owe more than it’s worth, with no commissions or fees! Give us a call at (714) 583-9004 or fill in the web form on our home page and we’ll get back to you within 24 hours!
