We have discussed the buyer-seller disconnect several times. Few commercial transactions have been consumated in the past couple of years as sellers have either refused to lower prices due to a different read of the fundamentals, they cannot liquidate due to capital constraints (writedowns for bank owned) or that they simply do not understand what they own or just replace number driven judgements with hope. Similarly, some buyers are unrealistic about pricing. They often believe that everything is distressed and can be obtained at a price below the appraisal or opinion of value. This is often stemming from the belief that fundamentals are still too weak or declining.
Owner-users do appear to have a higher willingness to pay for commercial space, however they are not the largest component of the potential buyer pool unless we are talking about smaller spaces or some improved frontage since most of the space that is being purchased or leased in the result of owner/tenant churning within the Valley as firms attempt to either lower their occupancy costs or find a higher traffic area. Overall absorption of vacant space has still not turned positive.
So what has to happen for transactions to occur? Like housing, prices should decline as values are reset to new fundamentals. Interestingly, Moody's is measuring an increase in transactions as prices have fallen, with volume increasing from $2.1 billion from $1.5 billion for the month of June year-over-year (housingwire.com). Such price declines are necessary before any bottom can be obtained and the subsequent recovery can begin. The recovery cannot begin when nobody knows the price of anything.