For years, traditional leasing activity in commercial properties followed a similar pattern: strong activity from mid-January through mid-April; a slowdown around tax time, followed by strong sales in May and June. By the Fourth of July weekend, business began its summer decline, which continued through mid-September, when business grew again until Thanksgiving and then entered a year-end decline in December.
Last year was an exception. After a weak first quarter, leasing and sales activity picked up, with sold gains through the summer. It weakened slightly in September only to see very strong activity in November and December.
Most observers thought that the real estate market was catching up to an economy that had come out of a recession. Typically, commercial property sees a positive gain 12-18 months after the economy leaves a recession. However, a similar pattern has been occurring in 2005. Most commercial brokerage companies across the country reported less than normal sales and leasing activity in the first quarter in all three sectors—office, retail, and industrial—but very strong second-quarter activity. Based on a poll of commercial firms, most expect a strong third quarter—the traditional slow summer months.
What has happened to change the long-standing cycle? Several factors may be involved. First, many large tenants saw that rental rates were beginning to climb by the end of the third quarter of 2004. Many believe that the reason for such strong 2004 fourth-quarter activity was that these firms made deals earlier than they traditionally did to secure better rental rate terms. This took a large chunk of deals that would have closed in the first quarter, and therefore created a slow start to the new year.
Another possible reason is that new technology tools such as CoStar and Loopnet have quickened the broker’s ability to provide necessary research and to streamline the initial tour process. This has allowed both tenants and brokers to tighten timelines when securing new space to less than six months from start to finish. Tenants looking to move by year end can now secure a space in the summer rather than in January or February to meet their move dates.
Tenants and brokers need to gauge if this trend will continue. Often the best deals arise in the traditional slow months of August and December. In the near future, February and September may become the best deal-making months. |
