Neal Warling of Bluestone Realty Advisors.

Ann Arbor’s commercial real estate market heads toward year-end with hopes that pending third-quarter data will show that we're sustaining some increases in activity.

That’s the message from Neal Warling of Bluestone Realty Advisors, who presented a snapshot of the local market at a recent panel discussion of the Washtenaw Contractors’ Association.

The data, he said, shows asking rental prices trending down and some dramatically low purchase prices that could skew the market for both buyers and renters.

But while the office leasing market in Ann Arbor nearly flat-lined in the first quarter - it did pick up by spring.

Now, he says, there are some indications that overall activity - while dramatically slower than earlier this decade - also is making some small improvements over a year ago.

“Things are still slow and people are still cautious, but at the very least people are looking for and taking office space,” Warling said.

Third-quarter data should be finalized soon.

And when it comes out, Warling and other commercial brokers - not to mention landlords and tenants - will be comparing the half-year report to how we’re trending toward that goal of keeping the activity going.

Some of the key points that Warling culled from CoStar market research, which tracks the bigger properties in the Washtenaw County market:

• Quoted office rental rates: They ticked up in the fourth quarter of 2008 after a steady fall from the beginning of that year. But that uptick was not sustained, and now they’re under $21 per square foot.

• Office vacancy is 11.5 percent of a total 12.8 million square-foot market. That compares to the recent peak of 14 percent in early 2007.

• The 25.3 million square-foot industrial market is about 13 percent vacant - the highest vacancy among any sector - but that’s been trending downward since a peak of 20 percent in early 2009. The quoted rental rate’s been sliding since 2008 from about $8.50 to $7.60 per square foot.

The vacancy trend may not continue, Warling said, since we’ll continue to see that type of space come onto the market. Prices are likely to fall, too, as the lack of demand meets more space.

“I look at industrial space like the unemployment forecast,” Warling said. “The feds say we’ll continue to see layoffs even though we’re in recovery. We’re going to see space come on the market even though it’s starting to turn around.”

• Asking prices and closing prices separated by a 45-percent gap.

Some of that is related to the buildings that banks are making deals on - and selling so cheaply that new buyers can undercut the existing market.

Another factor: Landlords who are just plain aggressive about getting any tenant into a property.

• Time on market: The average days it takes to move a property dropped in 2008, but now the annual average is approaching the 10-year high set in 2007. Today’s average: 450 days.

• Retail leasing activity isn’t keeping pace with the amount of space coming onto the market.

So what can we expect for the fourth quarter?

“I’m hoping - and based on the trendline - that unless we see something really funny happen with the stock market, we’ll trend upward with leasing activity,” Warling said.

But he can’t predict net absorption - the difference between leased space and space that came back on the market during the same quarter.

That means that any movement in leasing activity may be offset by more companies giving space back to landlords, either through lease terminations or bankruptcies.

“I think some properties will come back on the market and think we’ll see lenders take back some properties,” Warling said.

On the pricing side, he said, “I think we’ll continue to see some bargains out there. If someone is looking to make a move, there’ll probably be a time in the next six months when the best deals will be had.”

Paula Gardner is Business Director for AnnArbor.com. She can be contacted by email or 734-623-2586.