Commercial Real Estate Recovery 2011
Thursday, April 1st, 2010
NAR’s latest update on the Commercial Real Estate Recovery is out and indicating 2011 as the bright spot.
The fourth quarter of 2009 continued to decline commercial real estate and 2010 looks like a decline increasing to a flatline. However, 2011 according to chief economist Lawrence Yun will be the commercial real estate recovery.
“Because of the lingering impact from the deep recession over the past two years, vacancy rates will trend higher and many commercial property owners will need to make rent concessions.“With the job market expected to turn for the better later this year, we’ll see rising demand for office and warehouse space, but that isn’t likely before 2011,” Yun said. “At the same time, improved consumer confidence would help sustain the retail sector and encourage more people to enter the rental market.”
The SIOR index (Society of Industrial and Office Realtors), an indicator of commercial real estate activity is around 35.5. The index needs to show a level of 100 to have a balanced commercial market. Although commercial real estate development has been slow or non-existent banks are starting to loosen up on credit and lending again. This is critical as 1.4 trillion in commercial debt will come due in the next 3 years according to Yun. This will happen when the interest rates will be considerably higher than today and valuations will most likely still be lower than the peak valuations of the loans made.
The good news for the commercial real estate recovery is the bottom is very near and will likely not be as long and as deep as the residential recession.
