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ARE RENTS SOFTENING IN YOUR AREA?

Marc Renard is managing director of the Southern California Capital Markets Group of Cushman & Wakefield. Based in Los Angeles, he is also an executive vice president.

Well, the boom times win out again. Some 55% of our Feedback Poll respondents last week said that they expect rents to continue to escalate at a “Great-Guns” pace, while 45% believe “We’ve Peaked.” Commentator Renard is of the great-guns camp, and he says that the updraft will have a rising effect on building sales for the months to come. We asked him to comment on the rent situation and what impact that will have on sales for the foreseeable future. Here’s what he had to say:

“In most major markets–such as San Francisco; Los Angeles; New York City; Boston; or Washington, DC, you’re seeing significant rental rate growth. And in many of those markets, the growth is in the double digits.

“This trend will continue. If you look at underlying fundamentals, which include a lack of new development over the past decade in most of these major markets, you’ll see that vacancy rates are at historic lows—-5% to 7%. It’s a perfect storm of rental rate growth and very low availabilities.

“Hand in hand with that are current yields. People are buying office assets at a four-to-five going-in yield. The combination of all the capital in the marketplace today and the favorable statistical data that’s supporting rental rate growth has kept the market very strong. People are underwriting aggressive rental rate growth for the first five years.

“I think you’re going to see a lot of consistency relative to pricing and the underlying fundamentals will provide for a very stable environment for the next few years.”

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