Posted by: BayAreaComRE | February 23, 2010

The Bay Area COM RE Index – Up 0.75%!

In our efforts to keep readers abreast of the current market and dispel myths about an imminent crash in the economy, we decided to create a stock portfolio of companies that influence  Bay Area commercial real estate. We put together a hypothetical portfolio of 44 publicly traded companies. We included companies from developers, to owners, to large scale users.  We’re hoping you’ll follow our findings, allowing readers to gauge the current Bay Area market through a breadth of companies that call the Bay Area home.

Local commercial real estate metrics lag the general economy, especially concerning leasing and dispositions. After analyzing historical trends in past recessions, the commercial real estate market bottom lags the stock market bottom by 7 quarters. The bottom of the stock market was March 6, 2009, thus the bottom of the cre market could arrive in the fourth quarter of this year.

CLICK ON IMAGE FOR HIGHER RES.

Although each recession is different, there are overarching trends in the commercial real estate market that cause this lag. Major metropolitan markets house the majority of workforces, and the employers providing these workforces mostly lease (rent) space. Large companies generally do not own real estate, which is a common misconception. Real estate investors (private and public), insurance companies, and banks own properties. The economies of scale don’t call for companies to own their own real estate. Furthermore, the low upfront cost of leasing frees up capital to be deployed on the costs and investments more geared to their bottom line. Thus, the commercial real estate market is inextricably connected to unemployment figures.

As companies downsize and attempt to sublease space or bite the bullet with excess square feet, the commercial real estate market catches up to the overall economy. This creates a conundrum for determining or predicting the overall health of a local economy. Generally, employment is the best forward-looking metric. As employment picks up, companies will begin to absorb more and more space. But what has to take place for companies to begin hiring again? THEY HAVE TO MAKE MONEY FIRST!

That’s where the Bay Area COM RE Index comes in handy. This list comprises 44 of the best and the brightest, the movers and the shakers, but does not encompass all companies. The stock market is a great indication of how a company is going to look moving forward. Analysts, brokers, hedge funds etc are paid a lot of money to determine how a company will perform in the future. The price of stock today has a lot to do with where the company will be tomorrow (disclaimer: we do not claim to be stock market investment advisers). Another factor to keep in mind is that this does not include private companies, which also influence the Bay Area market. We are only covering publically traded companies. That being said, this basket of Bay Area companies should help to determine where our local market is headed.

We invested a theoretical $100,000 for each company, and the results are in after a month: the index is up 0.75%!!!

The top performers are: Silicon Storage Technology up 10.25% (SSTI), Agilent up 10.06% (A), and Juniper up 8.34% (JNPR).

The worst performers are: Zip Car down 41.10% yikes (ZIPR), Thomas Weisel Partners down 5.49% (TWPG), and Rambus down 4.65% (RMBS).

We’ll continue to keep you posted on the market as it develops further. Below is a list of the entire index:

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Responses

  1. […] spoke a little about the importance of employment as it relates to real estate in our introduction to the Bay Area COM RE Index. Hopefully, the stabilizing of job losses is a bellwether to the improving health of our economy. […]

  2. […] unemployment was a little “Negative Nancy”…we’re excited to report that our made-up index since inception is up 6.58%. We’re outpacing the S&P which is only up 3.8% in the same […]


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