Because of the financing crunch it is very difficult for investors in CRE to purchase properties. Only the strongest investors, be they institutions or private groups with capital, can get financing for income producing properties. Even then, lenders are often requiring large equity stakes, in the 35 – 40% range. If things keep moving, albeit slowly, in the right direction we would expect lending to loosen up in the next 12 – 18 months.

What does this have to do with space for Tenants? Well, if lending on existing properties is difficult then lending on new spec development is non-existent. If it will take 12 – 18 months for Investor lending to loosen then it is likely to be 24+ months before we sniff financing for new spec development financing in other than the strongest niche situations. You can add another 14 – 20 months before any measurable quantities of new space is available for occupancy. So now we’re talking about mid to late 2014 before the new supply has an impact on the market.

And guess what, we hope, is happening in the meantime. Barring a complete economic meltdown (a greater than 0% possibility) we will slowly grow out of this recession and all the time we will be adding jobs. Since jobs drive the demand for CRE, we will see the existing vacancy filling up (something we are already seeing in some submarkets for Office Space in the Dallas / Fort Worth area). With no significant new supply expected to be added to the market until mid-2014 or so we are likely to see continuing drops in vacancies and some real spikes in rental rates peaking in the 2013 to 2014 time period.

So beware if you have lease that terminates in that time frame. If you have the ability to forcast your company’s needs that far into the future you might want to consider extending your existing lease now to a later time when the supply – demand pendulum swings back to the middle. If you don’t know where to start, or how to make that evaluation, contact us and we’ll be able to assess the costs/benefits of making such a move.