While the housing market continues to stagnate, commercial property landlords are finding themselves in the same boat. For instance, in the Sacramento region, vacancy rates for the second quarter of 2010 fell to 13.4%, down from 13.7% in the first quarter 2010. It has been predicted that vacancy rates may fall as low as 11% by next summer.

The amounts of rent commercial landlords are charging their tenants are also falling. In the Sacramento region, the asking rent for a commercial space is $1.67 per square foot a month, down from $2.00 per square foot a month two years ago. Leading the charge into cheap commercial space are discount retailers and fast food restaurants who are taking advantage of lower rent. There are also some entrepreneurs who are taking advantage of lower rents and opening the business of their dreams.

first tuesday take: Until employment levels begin to rise in California at regular monthly job increases of 25,000 to 30,000 (an annual rate of 300,000 plus jobs recovered), just like the housing market, commercial property spaces and rents will continue to stagnate and falter.  The market never stands still. However, businesses generally will not hire additional employees until they’re confident a recovery is underway.

There are alternative ways for renting vacant space in commercial property. Short-term businesses called pop-up retailers function as a temporary stop gap. These pop-up retailers rent empty spaces for a short duration, between a few days up to a few months. Traditionally, these types of businesses were seasonal, like a Halloween or Christmas shop, but today landlords are allowing smaller entrepreneurs to take advantage of these empty spaces and bring foot traffic back into their otherwise deserted properties.

These business ventures are beneficial to landlords as it provides them with some rental income.  It is also hoped that temporary leases signed by a pop-up retailer will lead to a longer lease term in the future.  It’s a win-win situation for commercial landlords and entrepreneurs, at least until the economy fully recovers. [For more information on pop-up businesses, see the June 2010 first tuesday article, Pop-up retailers help fill vacant retail space.]

Re: “Sacramento’s empty storefronts finding tenants” and “Recession kicks open door to renting retail space” from the Sacramento Bee