Starting your own business? Need some extra space for your needlepoint habit? You're in luck ... office space comes cheap these days. In fact, rent for office space is sliding lower at the fastest rate since 1995. In the third quarter, office rents dropped 8.5% on a year-over-year basis. Falling prices typically go hand in hand with falling demand and in fact, vacancies are on the rise as layoffs increase. New York-based real-estate research firm Reis says the office vacancy rate has hit a five-year high of 16.5%. Last quarter, tenants returned 19.6 million square feet of commercial rental space to their landlords.
While declining rent prices may be good news for tenants or those looking for new office space, it is likely bad news for banks with commercial real-estate exposure.
Bank of America (NYSE: BAC), Citigroup (NYSE: C), and Wells Fargo (NYSE: WFC) are among the big names that may suffer in the wake of increased vacancies. Weakness in the commercial real-estate world could mean banks have to write off more bad debt. Additionally, regional, smaller banks may fare even worse, as their exposure to commercial real estate may be a bigger relative piece of total assets.
Beth works for The Options News Network (www.ONN.tv), which provides daily market commentary. The above comments are not intended as trading advice.
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