The Most Recent Office Vacancy Rates Do Not Seem To Be In Line With Job Losses

Think about this for a moment. We've had MASSIVE job losses, the worst economy since the great depression-16 months into it, yet office vacancy rates are around 12%. I've seen estimates that the overall negative absorption is only around 15 to 25 million square feet. Hardly much inventory at all. The early 1990's witnessed a peak vacancy rate of 13%. Look to your left, now look to your right, isn't this economy much worse?

I think that there is a huge discrepancy between what is available for lease and what is hidden, or off market. When you look back at the last real estate correction (2001) in our target market (California), it was primarily related to the tech bubble. Small technology companies they were supposed to grow 100 fold in five years swallowed millions of square feet of office space. After they blew up, immediately their office space went on the market, it was either absorbed, or it would sit on the shelf as inventory. You knew about the available space. What I think we are seeing now, and my point, it that vacancy rates should be a lot higher for the simple reason that the companies that are initiating layoffs, are major FORTUNE 500 companies. They are very reluctant to surrender nice sizable properties for the simple reason that it is so hard to acquire properties that fit their needs. Many large companies probably expect to rehire, the economy to turn around soon, or various other reasons to hang in there. But if this does not happen quickly, they will be forced to unload. Much different attitude than a small tech company with 100 employees.

My feeling is there are lots of unlisted office space available that are not being reflected in the most recent vacancy rate reports. Reality is that the true vacancy rate could be in the high teens. That puts tremendous pressure on values....and creates more situations for us to sniff around in and buy the right property at our price.