According to a survey by the National Association of Realtors (NAR) dated December 17, 2008, investment activities in real estate are at a near standstill because of the lack of financing. Except for those real estate transactions involving cash, activity has halted.
Not only are transactions not being financed as easily as they were one year ago, but the demand for commercial real estate is also shrinking in nearly all vertical sectors and geographic locations.
In the NAR survey, Lawrence Yun, NAR chief economist, said there are serious structural problems in commercial lending. “Although access to residential mortgages has improved, the opposite is true for commercial loans,” he said. “We need liquidity for commercial mortgage-backed securities not only to free the market, but also to rollover existing debt. At the same time, the loss of jobs has had a significant impact on the demand for commercial space.”
The outlook for retail real estate seems to be the worst, with the NAR estimating that 7.3 million square feet of retail space will become vacant in 2008, and with another 35.7 million square feet becoming empty in 2009. Markets predicted to lose the least retail space include
The industrial real estate market is expected to remain consistent for 2008 and 2009 with no large fluctuations anticipated.
Office space as a sector will have experienced some decline in 2008 and will see much more in 2009 as a result of shrinking employment. Available office space is projected to increase by 12.3 million square feet by the end of this year and 63 million square feet in 2009.
Rent in all segments of the commercial real estate market is anticipated to decline, with retail predictably seeing the biggest decline.
The NAR survey was conducted in 57
What do all these statistics really mean?
- Your ability to buy or sell commercial real estate will largely be affected by the industry segment and the location of the property you are trying to buy or sell.
- There is no way to predict when financing for commercial real estate will loosen, so this unknown factor could dramatically affect real estate values for 2009.
- Clearly cash is king in today’s market and cash transactions are likely to dramatically favor buyers over sellers.
- Now is NOT the time to build anything on a speculative basis unless it is in a geographic market that is likely to stay strong for the next several years.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
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