Well it didn't take long for the announced layoffs at Microsoft to hit close to home. I had several friends and past coworkers get the 'ax'. Depending on the job, they have a time to look for another internal MS position and my best wishes are with them and their families. Also, my partner, Kathi Jackson, and I have several residential buyer clients from MS who are, understandably, taking a wait and see attitude. I was able to listen to Steve Balmer and other executives at an internal MS townhall. Only 1400 jobs were cut right off the bat. So, the cuts will keep coming.
Not just employees cut
Possibly missed in the commotion about full-time employee cuts was the announcement of cost cutting with contingent (temporary) staff and vendors. That makes up a large part of our local work force also, so the cost cutting measures will mean more job cuts from other companies. Also, biz analysts are suggesting more cuts are needed. This is going to hit homes and the commercial market even more locally. The economic downturn has already made folks more cautious in their spending and that has been hitting local businesses, and the announced cuts will continue this trend.
Commercial affect of this and the overall economic downturn
The commercial market on the East Side, especially Bellevue and Redmond, is already being hit by announcements from MS that they were not expanding facilities as much. On a micro-level (no pun intended) I'm seeing it hit small businesses hard and small towns like my own Duvall. Small businesses, many which were only marginally profitable in good times I suspect, are closing quick with the economic downturn... cafes, restaurants, specialty shops, etc. have all closed in recent months. Just the other day, a local icon for 34 years, the Duvall Tavern, announced it is getting ready to close. I'm seeing the same thing happening in other towns in the area, large and small. And, I'm seeing more and more vacancy signs at shopping centers. As a positive note, I'm also seeing landlords become a bit nicer to tenants, as they are more anxious to keep the ones they have.
I expect the values of commercial properties, already on a slight decline to start coming down quickly over the next few months. I think that, like residential property owners, it has been hard to convince them of the economic realities and that the value they expected to get out of their property just isn't there anymore.
Cap rates in this area have been rediculously low for a few years, and are starting to climb... but it will be a few months yet before they are really averaging what they should.
What can I do (what can we do) for my business or property?
As business owner (I own a couple) I know I have to keep an eye on costs if I'm going to weather the economic times. I also have to keep on top of my value to customers. I also have to be realistic about my business and understand what is viable or not. I am always saddened to see a business open, knowing the work and the money that goes into that process, to know that in a few months it will close its doors because it is self-evident to someone with experience, that it was not really viable.
So, first, think before you leap if you are opening a business and make sure you have the money available to weather some hard times in the next 2-3 years. Own a property that you are leasing? I'd personally consider some shorter-term leases at good rates, with the hope that rental rates will get better in the long run. But, recognize that right that you probably are not going to get the rents you hoped for. (It may be the opposite if you are a multi-family property owner). If you are selling, and if you are I assume its because you need to, then be realistic. commercial property sales always take a while anyway... but now you will need more patience than ever, and if you want to sell in the next year, expect that your price is not going to be what you expected to be.
For agents, I think we are going to have to be honest with our clients about economic realities. It kills me to see an agent 'shining on' a client just to make them feel good... but to end up not selling or leasing their property. And, for me, I'll use it as an opportunity to get some more clients... all those small property owners who handled their own leasing could use my help to get the word out to a wider audience about thier properties. They can't depend on someone driving through town and saying "what a great place to start a business", especially if those folks are smart enough to spot the 5 other for-lease signs and all the going-out-of-business signs in town.
Are their opportunities?
I think so. If you have a business idea that can work during a slow economy, this is a great time to get a decent lease rate or to purchase a building (at least to start looking, so you are prepared as prices fall). if you are an investor, then definately the good deals are going to start showing up (some have shown up already). In the residential market, sales are strong for foreclosures, short sales, and other 'good deals'. The same will start happening soon for small commercial properties
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Jason Hershey, Designated Broker
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Duvall, WA 98019
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