Moody's/REAL National Office Properties Index which measures annual transactional volume in the commercial real estate asset classes has reported a 4 percent increase in office prices in the second quarter 2009 compared with the first quarter 09.
Rates had been on the rise since 2002 when they fell dramatically and steadily starting second quarter 2007. This is the first time since the second quarter 2007 - two years - that office rates have increased - a strong argument that the bottom has been reached.
The monthly cost of renting an office will vary in cost depending on location and your local market. Renting an equivalent office in our market would cost $1,500-$2,000 per month after paying rent, Internet, phone lines, and utilities. If the lease is a triple net lease requiring you to pay property taxes, it can be even more costly. There is a huge demand for small business owners needing to lease a small commercial suite to conduct business or meet customers. Many small businesses can't afford the overhead cost of leasing a larger office. Many businesses compliment a property management firm. Consider subleasing to a real estate attorney, sales agent who works with an investment group, insurance agent, mortgage broker, or contractor.
Renting office suites to small business owners is extremely profitable. We rent each suite for $400-$500 per month. Both office condos cash flow several hundred dollars each. Not only does this give me a free office, but I plan to use the yearly cash flow to payoff the mortgages within 10 years.
Corresponding with office rate increases will be the tightening of supply as very few new office buildings have been built in the last 18-24 months. As tenants begin to re-focus their attention on growth and hiring for that growth, occupancy will see increases simultaneously with limited supply which in turn will see rising rates.
Rent increase, while minimal at this moment, will have impact on the pre-existing mind-set of recession-era companies who maintain a belief in bargain hunting. With building owners now clearly showing they have limits in their borrowing power to satisfy hungry tenant improvement needs, tenants may find the right buildings increasing in rent while the wrong buildings languish. The slow movers in lease rates do, however, play a key role in accommodating lower-end tenants as they move up in quality.
Knowing when to list commercial retail space for rent is just as vital as knowing when to obtain it. Whether you are expanding your organization, need additional space or have realized that it's time to relocate, planning the sale of your commercial retail space for rent when the market is right will save you a great deal of funds. If you need to sell when the market is down you'll most likely have to lose money on the transaction.
The Great Recession has been a blood bath for many tenants and owners with every major indicator in the basement. Of the various bits of improvement in the US economy, Moody's/REAL National Office Properties Index increase of 4% is a strong leading economic indicator in the health of US commercial real estate and a road map for tenants to plan for a tighter market and increased costs.
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