The fact that the commercial real estate market took an historic nose dive in 2008 and 2009 is history. The pain was felt by almost anyone connected to this market whether that person was a property owner, a tenant, a banker - a broker. Now what we're all interested in is what will happen next. Are we in recovery? Is there a recovery around the corner?
Here's a glimpse of what has happened since the first quarter of 2005. This chart logs all commercial sales by quarter including office, industrial, retail, apartment, hotel and even development sites.
During the period from early 2005 through 3rd quarter 2006, sales were almost constant hovering just below $100 billion. The market overheated from the end of 2006 though all of 2007 Here's a question. Did we tend to assume that the super heated market had become the new norm? I can recall discussions with my peers in which we were hoping the market would cool off as we knew that this rapid escalation was unsustainable.
Be careful what you wish for!
Notice the sidebar comment on the graph pointing out that commercial real estate prices declined by an average of 42% during this period. And it was elsewhere reported that total sales volume in the industry declined by 81%!
2008 started slow and then fully collapsed into 2009 with the failure of Lehman Brothers in September 2008. I heard one economist say in early 2010 that "2009 was the worst year in commercial real estate history, and that 2010 would be twice as good" How good was his prediction?
Actually he was right on, especially as you look at the progressive pattern through the year. The fourth quarter showed good sales recovery. The reality is that this recovery wasn't evenly distributed throughout all markets. Peak sales tended to take place in the major coastal cities such as New York, Boston, Washington, DC and San Francisco with large trophy properties changing hands.
This chart also shows two shades of blue. The darker shade represents individual sales while the lighter shade is portfolio sales. What does the changing pattern mean to you and me? Simply that confidence is returning among large investors as money has begun to flow back into the market.
What happens when big money begins to flow back into the market? Demand increases, supply diminishes, prices increase. A big question is how lenders will respond to the small to medium sized investor. My sense is that financing is easier than it was a year ago, but that lenders are still cautious and underwriting is tougher.
When should the small, individual investor take advantage of the bargains out there now?
I'd like to hear your comments on any of the thoughts above. Examples: Are you considering investing now in commercial real estate? In discussions with friends and peers, what are their plans? If you’re a lender, or work closely with lenders, what is the mood now for lending on commercial real estate deals?
Author
Robert L. Yale, CCIM
Sperry Van Ness/ComVest Realty
276 Church Street
Northborough, MA 01532
508-351-7079
bobyale@svn.com