MARKET DRIVERS
Tariffs, Stock Market gyrations and ongoing conflict in Ukraine and Gaza are creating further uncertainty in the minds of decision makers who are largely and understandably taking a wait and see approach. As sale prices start to come in at under $300 a foot and lease rates continue to drift downward, the market is searching for stability. What seemed to be an uptick in tours and inquiries early in the New Year turned out to be a head fake as the quarter wore on.
LEASING MARKET
Demand in the leasing market is stagnant. Tenants in the market can expect lease concessions not seen since before the early months of the pandemic in the form or free rent or beneficial occupancy. Base rates in Class A offerings can be had for $1.75 Net and Class B is $1.50 Net for the better buildings. With total availability in the South Bay of 8%, Tenants have lots to choose from and leverage is in their corner.
SALE MARKET
Overall, Sale activity saw a bump in Q4 of last year but has again quieted down. The main culprit is not lack of deployable capital. The million-dollar question is “Where is the leasing market and lease rates really at?”. There are no clear-cut answers with the lack of viable tenants in the market. We need leasing activity to gather some momentum to give investors’ confidence that rates will not further erode, and concessions will stop rising.
NEAR-TERM OUTLOOK
We are hopeful that the actual tariffs will be less impactful and more certain than the daily whipsaw we have been experiencing. The sense of optimism with the installation of the new administration has receded and consumer confidence is weakening, particularly as inflation remains high. Rental rates and Sale pricing has been coming down and there will be a pivot but as to how soon, the guess here is that it’s not happening in the next couple of quarters. Without a shoring up of where the rental market is at, the sale market will continue to be restricted.
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