Monday, February 23, 2009

January CPI Numbers Go Negative

The BLS index came out Friday and for the MSA that covers Santa Barbara the numbers don't look good. Every landlord that has a minimum CPI increase for that month should be happy. The change from January 2008 to January 2009 was a negative .01%. This comes despite an increase from December to January.

Commercial tenants should be arguing as hard as possible against minimum annual CPI increases right now. The flip side of that is what happens if we do have an increase in inflation on the back end of a recovery? The maximum increases that landlords also negotiated of 5% to 6% could disappear and we could actually see much higher increases year over year in the next 2 to 3 years. What's the solution?

Perhaps it is time to go back to fixed increases in certain instances. We will probably see more retail leases done with fixed rent for 3 to 5 years with a 10% to 15% bump after that. Office leases will undoubtedly see some kind of annual increase but perhaps it will mean shorter lease terms for the foreseeable future. That has benefits for the tenant and landlord.

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