Credit Crunch Hurts Commercial Real Estate

The general economic downturn, complicated by a severe credit crunch in commercial real estate, is dampening commercial real estate activity. In addition, a forward-looking index shows the forecast for commercial real estate sectors will remain weak for the remainder of the year, according to the National Association of Realtors®.

NAR chief economist said commercial real estate has been hit by a double whammy. “Significant job losses have reduced the demand for commercial space, while a lack of credit has stalled transactions and refinancing activity,” he said. “It is critical for the Federal Reserve to increase liquidity by purchasing commercial mortgage-backed securities. Because commercial real estate always lags an overall economic recovery, it will take some time for the commercial real estate market to rebound.”

Overall, commercial vacancy rates are rising and rents are softening, according to NAR’s latest outlook. The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail and multifamily markets.

The gross domestic product is expected to contract 2.9 percent this year, than grow 1.4 percent in 2010. Similarly, the consumer price index is forecast to decline 0.8 percent in 2009 before rising 1.7 percent next year.

The unemployment rate is projected to average 9.5 percent this year and 10.2 percent in 2010. Inflation-adjusted disposable income is likely to grow 1.3 percent in 2009 and 1.1 percent next year.

“Although we expect the economy to begin to stabilize later this year, unemployment will probably peak at about 10.5 percent around the end of 2009.” “The job picture should gradually improve as 2010 progresses, but the fundamentals in commercial real estate won’t stabilize until somewhat later and will depend on the Fed’s actions.”

%d bloggers like this: