We are in the hunt for new space for our office. The 5 year lease on our current space expires in July and for several reasons, we have decided to move to slightly less expensive space. Don't get me wrong, our rate $12 nnn is very competitive and all three location, location, location requirements have been wonderfully met. But, with the uncertainty of the near future, we did not want to get into another long term commitment knowing problems are coming - construction in the area will SERIOUSLY impact out clients ability to get to us for the next two years.
$12 nnn....or triple net, means we pay a fixed dollar amount for the square footage, but we also pay for our own utilities, a proportional share of the taxes and a proportional share of the maintenance costs. But there is another kind of triple net that is about to explode on the economy as a whole that people need to be prepared for...
N1 - housing prices. The concern that a bubble has formed in housing prices has gotten a little boost from none other than Alan Greenspan who suggested that there was a little "froth" in the marketplace, but more likely in specific areas rather than nationwide. Given the concerns with Fannie and Freddie, a stagnation or worse in housing prices nationwide would have a serious impact on the economy because of what it would do to consumer spending.
N2 - interest rates. No one expected interest rates to stay where they were, so the increase over the last 2 years has not had much overall effect on the economy. That could change with another % or more of increases. Many home loans over the last 3 years were purchased with adjustable rate mortgages and those rates are just starting to adjust. Many will lock in rates slightly higher than they have been paying by converting to fixed rates but many will be unable to because of the higher cost or other personal economic conditions The government's announcement that it was re-introducing the 30 year treasury has also helped to actually stabilize things. However, with energy prices climbing over the last year, inflation has popped up some. A further increase in interest rates above what was planned in order to deal with an increase in inflation would further add to pressures on rates. I think most everyone expected a fed rate in the 3-3.5% range and if that were to occur, few would be worried. But if it pushed over 4 heading to 5%....both long term and short term rates would rise....
N3 - Consumer costs/prices. Anyone will tell you that despite the low rise in CPI over the last couple of years, the cost of living has risen strongly. The rising cost of fuel has been given the most attention, but food, insurance, utility and educational expenses have all grown much faster than inflation. (see previous post on the CPI) . Credit card companies are increasing the payments required under their plans as we move into fall, and it is expected that as many as a million people will be facing reduced pension payouts by the end of the year.
Now, despite the doom and gloom here, and in the media, the economy is showing some serious strength. The issues raised here, rising fuel prices, rising interest rates, increases in the payment requirements on credit cards, rising housing costs are stresses on the system. That said, all that is missing is something to spook the consumer and we could set a triple net threat to our economy tightening like a noose.
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