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Commercial property next US worry

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  • Commercial property next US worry

    Commercial property next US worry
    5:00AM Monday January 07, 2008
    By Ilaina Jonas

    As the chances of a United States recession increase with each new batch of economic data, some investors worry that commercial property could follow residential housing down the path of steep decline, leaving behind unpaid debt that would be difficult to unwind.

    "Real estate is a derivative of the economy and credit. If the outlook for those two items is not good, that obviously affects real estate," UBS analyst Alexander Goldfarb said. "Clearly, expectations of growth have changed significantly."

    A crisis in the credit market has led to tighter lending requirements, forcing some sellers to dramatically reduce prices and in some cases to take properties off the market.

    Demand for space is also down compared to 2006 when pent-up demand by businesses was still causing them to snap up space.

    According to preliminary data by real estate services firm CB Richard Ellis Group, the fourth-quarter of last year's vacancy rate for US offices, the largest commercial real estate group, inched up to 12.8 per cent from 12.6 per cent from the third quarter.

    While US downtown office vacancies remained unchanged at 10.3 per cent, suburban office vacancies rose to 14.2 per cent from 13.9 per cent in the third quarter.

    Last year the amount of space tenants rented over and above the amount of space they vacated (called net absorption) fell 24.5 per cent, according to Property & Portfolio Research (PPR).

    The firm expects this to fall another 15 per cent this year.

    Since 2003, the US commercial real estate market had been riding a wave of high prices as investors, loaded with cheap debt, bought shopping centres, apartment houses, distribution centres and office buildings.

    As interest rates fell, prices soared. And rents went through the roof with demand.

    But the boom times are gone. On Friday, the US Labour Department reported that employers added only 18,000 jobs last month and that the unemployment rate reached 5 per cent, its highest rate since October 2001.

    That sent the MSCI US REIT Index, a yardstick used to measure real estate investment trust share performance, to 803.04, its lowest level since November 2005.

    Weakness in commercial real estate demand is concentrated in previously hot housing markets in Florida, Southern California, Phoenix and Las Vegas, PPR said.

    "Housing-related employment declines in those areas have impacted the demand for office space," said Joshua Scoville, PPR director of strategic research.


    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  • #2
    I expect more layoffs and company closings this quarter.


    • #3
      Hmm... Liked it


      • #4
        I have read the article mentioned in the given link and i find very precise and to the point in approach.Thanks for providing such a useful information.The information is based in facts and figures and Us government should take serious measures in this regard.


        • #5
          They tend to mask how bad it is. For instance, when they report "unemployment" stats, they don't count people without jobs, they count people who are collect unemployment insurance. That means that when people get kicked of the insurance, according to the stats, they are immediately "employed" again. Since the federal reserve is out of control, I just don't see how the economy can improve.


          • #6
            Originally posted by Commercial Realtor View Post
            I expect more layoffs and company closings this quarter.
            You and me both!


            • #7
              I think the recession will affect on every business sector but as the residential real estate is already suffering a downfall due to unpaid debt , so the commercial sector is bound for recession soon.


              • #8
                Actually Commercial is about to take off here. Good buildings never even get listed. All depends on the city of course. Realtors are fighting over points just to get offers accepted.


                • #9
                  Location and can you get it leased up!