Some Manhattan landlords have been forced to discount office rates as much as 20% as the demand for these spaces continues to drop. To hold onto their tenants, landlords could offer generous renewal packages to tenants with leases that expire in the next 12 to 36 months -- these tenants will likely have an abundance of available office space to choose from when their leases expire.
Even cream-of-the-crop office developers with sterling track records and prime, high-visibility locations in the District of Columbia are finding themselves frozen out of the credit markets. More than four months has passed since the last office project broke ground in D.C., and the consequences of the downturn are starting to ripple through the area's economy.
The economy will not begin recovering from the subprime mortgage crisis by the end of the year, says the latest Federal Reserve Beige Book, a report based on anecdotal information from economists, bank directors, market experts and other sources. According to the Atlanta Federal Reserve president, the economic sector under the greatest amount of stress is commercial real estate, and it is likely that this industry's struggles will complicate efforts to stabilize the banking system and credit markets.
REITs are restructuring balance sheets, reducing debt and stashing capital to be ready for future opportunities, according to a consensus of more than 60 round-table discussions at Citigroup's three-day Global Property CEO Conference in Naples, Fla., this week. Although officials raised familiar concerns over the lack of financing, high vacancy rates and declining rents, there were some signs of optimism from analysts and executives.
As a group, equity REITs are paying out their highest dividend yields since 1990. REITs carrying relatively low amounts of debt that are able to cover dividends with cash from operations remain promising opportunities.