Listen to what Richard Parkus of Deutsche Bank has to say about commercial real estate. He said that "We are not only not approaching stability, we are at a period of maximum deterioration."
We have often said that after the collapse of residential real estate in the last year, the next shoe to drop would be the commercial market. What is being wrung out of the home market is now beginning to be felt big time in commercial real estate. Landlords are putting together all kinds of packages, including free rent and other perks, and still prices are falling. It is believed that values are down a whopping 50% from their peak in 2007.
The damage being done now will continue through 2017, according to Mr. Parkus. Rents are plummeting and vacancies are rising, which is making it difficult for owners to meet their monthly mortgage payments. Losses are estimated to be in the 4% range this year and 12% over the next four years. These numbers seem small but keep in mind that this 12% is being calculated on a much larger principal than home mortgages.
Much like the home market, we are seeing an implosion in the commercial markets, which is likely to continue for several years. Less demand means less money coming in; and less money coming in keeps landlords scrambling to keep their buildings rented. In the process, many landlords will bite the dust and be forced into bankruptcy.
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Reader Comments (Page 1 of 1)
6-23-2009 @ 11:19AM
Mike said...
The scary thing behind this all is that Glenn Beck was right... *queue Twilight Zone theme*
6-23-2009 @ 12:55PM
MasterPlan Capital LLC said...
We have some more pain to endure, but the sky is not falling.
Last week on CNBC billionaire real estate investor, Sam Zell, said that fears of a collapse in CRE are being “overstated”. Big asset managers have announced that they are committing billions to new CRE acquisitions.
Properties that were bought and financed wrong will adjust to the market’s new reality. Admittedly, that’s a-lot of properties, and the hit will be hard, but that’s what markets do.
Ebb and flow, peak and trough…
www.masterplancapital.com
6-25-2009 @ 1:28AM
Mitch said...
We've all got to learn how to live a bit skinnier until the future middle class has graduated from college and are earning-and being taxed- at much higher rates. Excess is passe for the current middle class, frugal and savings are in. It rook us decades to build the trillions in financial security that were lost literally overnight. We do not have those decades available again. That task belogs to our children.
Commercial retail development will decline until it aligns with the public's actual tolerance for expenditure of discretionary funds. Right now we are saving-keeping our money in CD'S and increasing savings- until our confidence in the economy and our future security is rebuilt.
Commercial development will not be stimulated in the short term by big retail purchases at discounts that increase our debt and require long term repayment plans. We gave up our money once. We will not do it again. Instead we are keeping our money in the mattress to live on in our retirements.