more about funding their existing debt maturity obligations
than taking on new obligations.
space is difficult for the landlord, so landlords will be willing
to retain their tenant at a lower
rent,” he says.
A Buyer’s Market John Guinee, an analyst with
Landlords have to face the fact Stifel, Nicolaus and Co., dis-
this year and potentially into agrees. “Rents are already very
2010 that negotiations and low, at 2000 to 2004 levels,” he
concessions are the order of the says. Going forward, “REITs
day when it comes to re-leasing cannot continue to arbitrarily
and rollovers, Taylor says. drop their rents.” Declines in
“Landlords’ pricing power will incoming rent hurt cash flow,
continue to erode with tenants which impacts not only the
asking for more concessions, REIT’s ability to cover its debt,
and landlords making them.” but also its dividends and its
Given the choice of losing valuation—where REITs
a tenant or giving concessions already have been taking a
and keeping a tenant, landlords beating.
are going to do what they must Instead of an across-the-board
to maintain occupancy, Knott drop, Guinee expects rents to
agrees. “Tenants really want to stay generally flat, although the
-RsEtaIy T1p/u2t bpec aagueseAodf th4e/c1o5s/t0a8nd 2:40siPtuMatioPnagweill1differ by market,
hassle of moving, and re-leasing he adds. “Suburban markets that
never saw a rent spike will do
well for the rest of the year without a significant falloff,” he says.
Headlines about rents and
where they are going “can be
misleading,” Smotrich adds. He
points out that asking rents have
declined, but are still above in-place rents, which means positive—although lower—growth.
Barclays’ latest analysis projects
a 1 percent increase in rents
for the year.
On a more somber but realistic note, Taylor points out that
office REITs are still only at
the midpoint of what analysts
expect to be at least a two-year
down cycle. “It’s still early, and
the full impact is going to take a
while to play out,” he cautions.
“We’re just going to have to
battle through it.” F
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