Even Commercial Landlords Are Losing Money
When the 1980's bust came to the oil patch, nothing fell harder than commercial property, as there was no use for it in the economic recession. It isn't surprising to hear the bubble is showing up in Californian office and manufacturing property. But it is odd that market fundamentals are being ignored. "Commercial properties for (the) hard-hit manufacturing sector are nearly 11 percent vacant."
"Matt Quaglino, who has built several office and industrial buildings in the San Luis Obispo area, says the price of land zoned for manufacturing has soared 170 percent in the last five years."
"Commercial properties and building sites around the county are fetching top dollar, and, except for in the downtowns in San Luis Obispo and Paso Robles, it's occurring even though demand is mediocre and rents are stagnant or falling. Industry observers attribute the trend to scant inventory and local investors flush with cash. They're betting that the escalating prices that hit the residential market will hit commercial sites here, too."
"Investors get much less return on their commercial holdings than they would have two or three years ago. Unless a buyer comes in with much more than a standard 20 percent down payment, they could be looking at several years of negative cash flow before rental income rises sufficiently to cover mortgage and operating costs. Some local builders strapped with skyrocketing land and construction costs are locking in quick profits by selling office space in new buildings rather than waiting for lease rates to catch up with development costs."