San Jose foreclosure listings in the commercial sector are growing, based on data from Bay Area commercial brokers and Santa Clara County property assessors.
The vacancy rate for commercial properties in the Bay Area has increased to around 20 percent as business enterprises cut down on their operations and costs. Shuttered businesses have also abandoned their rental spaces.
Steve Peck, a commercial broker in the area, said there are now a lot of distressed tenants who are sub-leasing their spaces and a lot of landlords who are offering free rent and other concessions just to reduce vacant spaces in their buildings.
They know that if majority of their spaces are vacant, their existing tenants could move out freely without penalties as described in their contracts. Low-occupancy buildings also tend to be avoided by new tenants.
One tenant who has negotiated for a low rental rate is Indu Jayakumar who heads an Internet marketing firm. She is now renting a 1,200-square-foot office for a per-square-foot rate of only $1.50. She added that her landlord granted most of her requests, including the repainting of the office.
Over the past 12 months, commercial rents in San Jose have fallen by 13 percent. Rents in San Francisco have plunged by almost 16 percent while rates in Oakland have dropped by 10 percent.
As commercial rents decrease and as tenants abandon commercial buildings, property owners and developers are left with no cash to pay their jumbo commercial loans, ultimately adding their properties to San Jose foreclosure listings.
Larry Stone, assessor of Santa Clara County, explained that commercial foreclosures usually happen if the property owners and developers are not able to refinance their maturing loans and their rents are continuously falling. Many developers also are unable to find investors who are willing to inject capital into commercial property projects that have low occupancy rates.
The only winners of the commercial property crisis are the new tenants and old tenants up for renewal who are able to demand concessions in rates and in other leasing services.
Another major difficulty affecting tenants in the San Jose area is the decline in lending from the U.S. Small Business Administration. Over the past 12 months, lenders participating in the SBA loan program have significantly cut down their lending programs because of concerns about business failures.
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