Washington County: Economic Outlook to Some Lease Language Nuggets

A recently released “Economic Snapshot” for Washington County from the Department of Workforce Services show that the Washington County job market bottomed out in the first quarter of this year. Nationally, the job market appears to have bottomed out the third quarter of this year. It is important to note that “bottoming out” does not necessarily mean things are getting better; it simply means things are not getting worse. Additionally, new unemployment claims in Washington County are down from 2008 levels.

Focusing on trends, it is interesting to look at the year-over-change in the MSA Area Housing Price Index (HPI), (see below graph). There is a lock step fashion in timing, as well as the magnitude of the St. George housing market in comparison to the Las Vegas and Salt Lake markets. In addition, the degree of decline for the Las Vegas market in comparison to St. George is of importance to note. Studying these trends, you can see where the recovery occurs for the St. George market.

Taking advantage of the current commercial market offerings, many large players are now coming off the sidelines and taking a look at Washington County commercial property. This does not mean values are recovering and pricing is strengthening; instead, deals are now coming to the point where they are simply too good to pass up, especially given the growth potential for Washington County.

In regards to the Washington County industrial market, as of mid-year we stood at an 11 percent vacancy rate, which has moved slightly upward. Industrial lease rates are averaging $3.60 to $7.80 and unemployment rates sit around 7.7 percent. What does this mean for the industrial market?

· Vacancy is definitely viewed upon poorly by owners, but it also becomes a blossoming opportunity for groups that have had interest in Washington County but have not made the move. Lease rates are much more favorable and owners more flexible.

· A few years ago it was impossible to get space in Millcreek Industrial. Now, several property options are available offering companies quick and easy access to the surrounding area.

· It was extremely difficult to purchase industrial space due to the dearth of offerings, but that has changed dramatically. Space is now available, and is priced well below replacement costs in some instances.

· The airport is still moving forward, the new interchange is finished, fiber is moving farther into Fort Pierce and prices keep moving down. Now is the time to move in and be in a position to take advantage of the infrastructure improvements. When the economy rebounds, these enhacements will serve to raise prices back up. Early worms will be grateful they made a decisive move and saved valuable money, fence-sitters will be caught gawking and will lose the prime opportunity.

· Housing is significantly more affordable and will allow a wide range of choices for owners and employees moving to the area.

· Unemployment has tapered off, but at current levels good employees are easier to find and attract with reasonable and competitive compensation packages.

Changing direction a bit, we now turn our attention to a concept that has often gone unnoticed in leases. Before we go on, it is important to note, agents and brokers are not attorneys, it is always a good idea to have your attorney review a lease or purchase agreement to make sure your interests are protected as negotiated.

With that said, what is a non-disturbance clause or agreement? It benefits the tenant in case of a lender foreclosure on the property or premises they occupy. The agreement is between a tenant, a landlord and a landlord’s lender. The tenant agrees that his/her interests in the premises are subordinate to the lender’s interests. The lender promises that if there is a default by the landlord on the mortgage, the lender will honor the terms of the lease and not disturb the tenant, so long as the tenant is not in default. Should a lender foreclosure take place without this clause in place, the tenant would be at the mercy of the lender. The lender could demand new terms (e.g. higher lease rate, increased lease escalations, removing or altering lease extensions and terms, etc).

Given our current environment, this clause is becoming an increasingly important protection for the tenant and one to ensure is in your current lease and future lease agreements.

october report

Travis Parry is an Industrial /Investment Specialist with Commerce CRG, St. George.

Jeremy Dickamore, is an Industrial/Investment/Land Specialist with Commerce CRG, St. George.

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