rents for small industrial and office properties continue to drop at the fastest rate since the beginning of the downturn, the velocity of decline has stopped accelerating, according to the latest monthly small-cap research from Boxwood Means Inc., a real estate research and consulting firm. U.S. industrial asking rents fell 0.61% in May to an average of $7.63 per square foot, and office rents eased by 0.27% to $18.21 per square foot. Rents have fallen for 18 consecutive months as the pace of decline has reached peak levels. Nevertheless, negative rent growth has flattened out since the beginning of the year, offering fresh evidence that a market bottom may be near for this hybrid sector, Boxwood says. The small-cap market of industrial, office and retail properties under 50,000 square feet closely tracks the performance of the residential housing market, even more so than it does the larger commercial property market, the company says. With the residential housing market showing signs of stabilization, the small commercial market, which is highly dependent on neighborhood-based businesses and residential communities, might also be finding a market floor. ‘With continued weakness and disruption in the larger commercial real estate property and capital markets – not to mention the dour economic and employment picture – it may seem unreasonable, if not premature, to sound the depths of the small-cap market,’ says Randy Fuchs, principal and co-founder of Boxwood. ‘Yet, it's undeniable that this sector has historically moved in lockstep with the housing market, and very early signals from both markets suggest that change is afoot.’ Financing availability has been a differentiator that has propped up the small-cap sector. Small commercial landlords have generally been able to obtain financing for their properties from small local and regional banks, thrifts and credit unions. In so doing, these owners have been able to sidestep the funding challenges and distress that larger or institutionally oriented property owners have faced. SOURCE: Boxwoo
