Leasing vs Sales Forecast for 2013

Leasing activity continues to be exponential when compared to the sales volume we are witnessing in today’s market. Consider that leasing activity has outpaced sales volume approximately 20 to 1 within the past year. This phenomenon is particularly of interest considering the historically low interest rates available to (who appear to be) qualified SBA Borrowers, but perhaps it’s a reflection on the stringent terms and conditions that have been imposed upon these potential buyers by banks and regulators to qualify for new loans. After reviewing sales over the past 12 months for office and retail properties, it appears prices are trading in the $190 to $210 per square ft. range. Further downward price pressure has been exerted by the REO nature of several of the past sales, and compounded by any motivated seller’s necessity to compete with these comps in order to get a property sold. 775 Farmers Lane is one exception which sold for a whopping $255/sft. That particular building needed a complete interior overhaul, but the large lot and its superior retail presence (across from Montgomery Village, on a major traffic artery) made that an unusually well positioned attractive opportunity.

In looking into my crystal ball, I have to believe that this current trend of sales to leasing will slowly begin to even out in 2013. This trend will be predicated on a couple of things. One is the encouraging note of the softening lending environment. Commercial Lenders are beginning to take a broader, more global approach to the Approval Process, thus opening buying opportunities. Additionally, with property prices hitting historic lows and the accompanying interest rates following suit, the market opportunities are hitting a kind of critical mass. Finally, after years of eroding marketplace confidence, a burgeoning Bay Area Economy is beginning to fuel a perception of renewal and economic growth. Buying in a rising tide of economic growth may be winning strategy for a new crop of strategic investors…