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Loan sharking, free rent, and other signs that the recession is not quite over

We’ve collected some anecdotes over the past few days that reaffirm our view that, while things are slowly improving, we are far from being “out of the woods.”

For example, we find it telling that Nomura, the large Japanese investment bank, will enjoy a 6-year rent holiday in their new office space in London’s financial district.   According to the FT, the bank signed a 20-year lease and agreed to rent of 40 pounds sterling per square foot, considerably lower than the 70 pounds per square foot that was the going rate a few short years ago.  And the first 6 years of the lease are free!

With over capacity in the financial sector likely to persist for some time, it will be interesting to watch London’s two financial districts — Canary Wharf and the City — duke it out for a shrinking pool of corporate renters.   We don’t see this ending well for the owners of high-end London office space.

Meanwhile, with the global financial system still…shall we say, “impaired,” the old art of loan sharking has made an inglorious comeback (”Loan Sharks Circle Credit-Starved Consumers“).  The WSJ writes, “Loan sharks, so named because of their predatory behavior, are seeing a boost from the U.S. to Malaysia, where police launched a recent blitz against so-called au Lang gangs.”

Finally, no analysis of the weakness of the economy is complete without mentioning the deteriorating condition of state and local finances.  Despite an improvement in the overall economy, municipal woes “may be just beginning, since city finances tend to lag behind changing economic conditions by 18 months to several years.  Because of assessment cycles, for example, it often takes several years for city property taxes to reflect changes in property values. For this reason, cities will feel the deeper effects of the recession beyond 2009, with the worst years being 2010 and 2011.” (From “US city finances suffer as recession goes local“)

The FT reports that 9 out of 10 cities believe that their financial situation would be worse in 2010.

So, while some areas of the economy appear to be slowly improving, we repeat: we’re not out of the woods yet!

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy