BT Commercial recently released its annual Northern California Regional Overview, which summarizes market trends and forecasts in the Bay Area's office, R&D, warehouse, industrial, retail and investment markets.
According to BT Commercial CEO Mike Kamm, "A number of factors have contributed to the depressed state of the Bay Area's markets in the last two years. The stock market's steep decline, weak demand for American exports, overcapacity in the telecom and internet infrastructure sectors, the events of Sept>11, corporate accounting fraud, threats of terrorist attacks, and potential conflicts in North Korea and Iraq all led to weak business demand."
According to the report, throughout 2002, vacancy increased and asking rates declined in all product sectors and geographic regions. The Bay Area ended the year with and overall vacancy rate of 20.2%, compared to just 4.3% in 2000, and nearly half of all R&D submarkets ended 2002 with a vacancy rate of more than 20%.
The Bay Area warehouse market ended at 9.7%, while the manufacturing sector remained the healthiest with a yearend vacancy of 6.9%. The retail market continued to be the best performing segment of the market and proved to be largely unaffected by the economic downfall. "For landlords, the operative word became 'retention,' as keeping existing tenants was generally less costly than attracting new ones," says Kamm.
The report concludes that the outlook in 2003 for the Bay Area's real estate market is a year that the markets should find the bottom. As the national and international economy improves and job growth increases, the Bay Area can expect to demonstrate historical levels of positive annual net absorption, fueling a slow, but steady recovery. However, BT Commercial does not anticipate significant net absorption and rental growth until at least 2005.
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