#5 Real Estate Trend of the Decade

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As promised here is the fifth-ranked trend of the thousands. Written by Brian Summerfield, Online Editor of Realtor Magazine. 

#5: Commercial Crash

I feel like I’ve been paying a fair amount of attention to the commercial market lately. There’s a good reason for that: This sector of real estate is currently going through something like what housing experienced from 2006-2008. In fact, it may even be worse.

Let’s take a quick look at a few figures:

• Even though rents will almost certainly decline, office vacancies will likely climb more than 2 percent between now and this time next year, according to the latest commercial forecast from NAR’s research division, and may approach 20 percent next year.
• That same report says vacancy rates in the industrial sector are expected to top 15 percent in the third quarter of 2010.
• In the most recent Commercial Real Estate Index from the Society of Industrial and Office REALTORS®, 85 percent of participants report that there is essentially no development in their markets.

So, how did it come to this? Simply put, when the broader economy started contracting in mid-2008, most sources of capital dried up. The money just wasn’t there for hiring new employees (or paying many existing ones), funding new business ventures, and building new retail complexes and office parks.

This isn’t to say that commercial real estate didn’t have any internal problems. There was clearly overbuilding of retail and office developments in many areas, some of which were also experiencing an overheated housing market. But the commercial sector’s woes were due primarily to the meltdown in the broader economy.

There may be more problems ahead, too. More than $1 trillion in outstanding commercial debt will be due by the end of 2012 (the same year as the Mayan Doomsday Prophecy—coincidence?). And a broader economic recovery is needed before we can start to seriously contemplate a turnaround in commercial real estate.”

Watch for the blog on the sixth-ranked trend of the real estate market for the decade!

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