Area brokers say the commercial real-estate market has slowed considerably in recent weeks, as various constituencies — buyers and sellers, tenants and landlords — are, by and large, taking a wait-and-see attitude with regard to the economy and its impact on individual situations. One broker called this the “pause phase,” and said the question isn’t whether the region is in one, but how long it will last.

John Williamson says he can sum up the current commercial real estate scene with just two words: ‘tenant’s market.’

He could elaborate, and did, but told BusinessWest that this phrase pretty much captures the moment. Tenants are, by and large, in the proverbial driver’s seat, said Williamson, president of Springfield-based Williamson Commercial Properties, and will be until the current economic turbulence subsides and a measure of stability is attained.

The commercial sector is traditionally the last to feel the impact of an economic downturn, Williamson explained — and the last to emerge from one — and it is showing some effects now, he said, adding that the market is slowing and landlords are losing some control over matters.

The meltdown in the financial-services industry has left the status of that sector, and what six months ago would have been considered some good, secure tenants (everything from banks to brokerage houses) in doubt and transition, Williamson said. This will leave some vacancies — in this region and especially downtown Springfield — and the possibility of more, which means that tenants coming to the end of a lease or looking for a better option can strike some pretty good deals.

And some already have.

“Never before have I experienced a stronger tenant’s market than I think we’re going into now,” he observed. “There’s lots of space out there, and everyone is looking for tenants. So if you have a tenant that’s strong and stable, you’re going to work hard to keep it.”

But there are forces at play that make the market difficult to sum up with a simple two-word phrase, said Robert Greeley, president of Springfield-based R.J. Greeley Company, LLC, although he did have one of his own to describe the current conditions: the ‘pause phase.’

“It’s a time when everyone stops, takes a deep breath, and says, ‘what should I do now?’” he told BusinessWest, adding that a whole host of constituencies, from buyers to sellers, tenants to landlords, are pausing, and will likely be doing so for some time. “People are waiting to see if another shoe drops; they’re pausing, and it looks like a long pause.”

Overall, Greeley said, while it is in many respects a tenant’s market, some economic conditions are keeping the pendulum from swinging further in that direction. The tightening of the credit markets and general uncertainty about the future of the economy have some people who would have been focused on buying or building a year ago looking more toward leasing or extending a lease, he explained, and this increases demand for available space.

“For years, we had a market where seemingly everyone was a buyer because everyone could get credit, so every business wanted to own its own real estate,” he explained. “But with credit tightening up, I think you’re going to see a lot of those people becoming tenants.”

At the moment, though, uncertainty and hesitancy prevail, he continued, adding quickly that despite all this pausing that is going on, R.J. Greeley has managed to put together a record year. Some large deals, including the location of Liberty Mutual in the Technology Park at Springfield Technical Community College and relocation of the Behavioral Health Network into space on Liberty Street in Springfield, have certainly helped set the pace, he said, but the quantity of deals, not the overall quality, has made the difference.

And he expects ’09 to yield more of the same.

“We’re transaction-oriented people,” Greeley said of brokers. “And whether the market is up or down, we’re in the middle; there will be a market, and there will be deals to be made.”

Coming to Terms

Bill Low, a vice president and broker with Samuel D. Plotkin & Associates in Springfield, is a fairly regular contributor to the New England Real Estate Journal. He submits something called the “Industrial Wrap-up,” which, as the name suggests, analyzes that sector of the market, and was working on his latest column — due to actually appear in print in a few weeks — as he talked with BusinessWest.

His preliminary lead — still a work in progress — was something along these lines: ‘By the time you read this, the situation may already have changed …’

That’s the way the market is right now, said Low, adding that things are changing quickly and often, and usually it’s a function of headlines and how the news of that day impacts overall confidence — and the volume of phone calls to his office.

As an example, he flashed back a few weeks.

“Things were really quiet up to that Friday (Oct. 10) when the stock market was way down,” he recalled. “But that weekend, with the meeting of the G7 and moves that made it look like the financial markets were going to get bailed out, all of sudden things picked up, and we started getting more phone calls. It’s psychological … when people see a plan in place, they start to gain some confidence; they think there’s a safety net.”

Things hadn’t changed appreciably by mid-week, when the stock market had started to nosedive again, said Low, but as he wrote in the Journal piece, things can change in a hurry.

Overall, phone-call volume has been way off what might be considered normal or typical, said Low, noting that hesitancy remains a prevailing sentiment among many business owners, investors, and potential investors.

Still, things have to be kept in perspective, he said, noting that conditions in many urban areas, especially those with large numbers of jobs in the financial-services sector, have been hit much harder.

“I got an E-mail recently from a friend in New York,” Low recalled. “He was talking about how bad things are there, and he said of Springfield, ‘I imagine things are pretty much the same there … it didn’t spike with the rest of the world, so not much can change; it’s difficult to fall and hurt yourself when you’re lying on the floor.’”

That was a colorful way of saying that Springfield rarely, if ever, has too far to fall, said Low, noting that his friend is, by and large, on the mark with that analysis. But while the decline isn’t pronounced, it is noticeable.

“Things have slowed down considerably, “ he said, adding that these softer conditions have had some predictable responses. For example, some landlords are comparatively quick to lower their rates or create other incentives to land or retain tenants.

“I represent some fairly large property owners on a national level, and without my prompting even, wherever there’s vacancies, they’ll say, ‘drop the asking rate 50 cents a square foot,” he explained. “That’s not a lot of money, really, but psychologically, it may make a difference for someone on the fence.”

Williamson agreed, but noted that, overall, in these ‘tenant’s market’ conditions, brokers often have to work harder and be more imaginative to facilitate deals.

“It’s a lot of hard work,” he said of life in the current market. “People are a lot slower to come to the table, and it takes more resourcefulness and creativity to put deals together. But life goes on, and we’ll continue to do business.”

What’s the Deal?

While analyzing the current market is a fairly simple assignment for brokers, especially those who have been through a number of economic cycles and have seen all this before, predicting the future — at this or any other time — is a much tougher task.

Indeed, Greeley told BusinessWest that the primary question — and perhaps the hardest one to answer — is just how long this so-called pause phase will last.

Much depends on the economy, consumer confidence, credit availability, and a host of other factors, he said, noting that he and others working within this market will likely know something definitive by the first few weeks of the next year, or the start of the next busy period for brokers — the other being early September.

“I hear from some people who are saying, ‘if you’ve got some opportunities, I’m ready to rock,’” he said, noting that a faltering stock market has some investors thinking strongly about putting their money elsewhere. “But I hear from some people who say, ‘I want to slow down; I don’t want to make a big commitment until I find out what all this stuff means to my business.

“It’s like people are at a traffic light waiting for the signal to change,” he said of the various constituencies that shape the commercial market. “Everyone’s waiting for a sign that it’s OK to move ahead.”

Elaborating, he said that people are waiting for some sign that the proverbial bottom has been reached and that the economy is moving back up again — and there is considerable doubt about if that has happened or, if it hasn’t, when it will — or an indication of overall stability. And there haven’t been many of those.

“Everybody’s in a little bit of a state of shock,” said Williamson, referencing, among other things, the dramatic slide on the stock market, which has taken a heavy toll on retirement plans and prompted pundits to draw a number of comparisons to the Great Depression. “We’ve had this confluence of a lot of pretty amazing things happening all at once. People are worried, and understandably so.”

Meanwhile, despite the $700 billion bailout plan, many tenants that would have been considered solid and an asset to any property owner are now shrouded in question marks.

“So many of the financial-services companies and banks are on tenterhooks,” said Williamson. “So if landlords have good, stable tenants, holding on to them is the name of the game.”

Low agreed, and told BusinessWest that, until conditions improve, there will likely be a resurgence in leasing, with some possible benefits for area property owners.

There will be more of the ‘musical-chairs’ tendencies within this market, or people moving from one location within this area code to another, a phenomenon that creates both winners and losers, he said. But there may also be some movement from outside the market, with companies looking to take advantage of rates that are lower than those in many other urban areas.

“I think that people will start to look at their overhead and say, ‘over here, I can lease space for $15, when I’m paying $22 in downtown Hartford,” he said. “It’s a bit of a stretch, but why wouldn’t people try to get that lower rate for the same kind of space?”

The ‘Bottom’ Line

Although the Western Mass. market is fairly steady, it does suffer some highs and lows, said Williamson, noting that, when it does, it impacts the volume and nature of brokers’ efforts.

“There are times when we’re working for developers,” he said, referring to the go-go ’80s when the commercial market was booming and credit was readily available, and some other periods since then. “And sometimes we’re working for the banks, like when the market went bust.

“Right now, we’re essentially between assignments,” he continued with a laugh, adding that this means brokers are not toiling for either of those constituencies. Instead, they’re navigating through a period that veterans say is typical for this region — a time of adjustment and uncertainty.

In other words, another ‘pause phase.’

George O’Brien can be reached at obrien@businesswest.com