How the Improving Commercial Real Estate Market Could Affect You
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The commercial real estate market (CRE) is in recovery. Everyone loves good news so
I'm starting with that. Now comes the big set of questions:
- How fast is it recovering?
- How far will it recover?
- What roadblocks stand in the way of a full recovery?
The chart shows where we were before the collapse, how far we fell and how we're doing today.
We had a reported 81% reduction in gross dollar volume of commercial real estate transactions from its peak in 2007 to its bottom in 2009. And there was an average price reduction (orange line) of 42% in that same time. The good news is that 2010 doubled the volume from 2009 and we're still progressing.
In our national economy, the CRE is a collection of hundreds, even thousands, of smaller markets. So, who has prospered and who has not? Major coastal cities such as New York, Washington, Boston, Los Angeles and San Franciso have all benefited through the sale of major trophy properties.
But secondary and tertiary markets have not necessarily shared in this growth. Major REITs and foreign capital have been attracted to quality in the A markets.
Not all markets have been neglected.It's been reported that over 50% of the freshly invested capital investments by REITs has been in projects less than $10 million. And while these investments haven't necessarily been in smaller markets, this cash infusion has freed up other capital from traditional lenders to invest in local projects.
What types of investments are attractive to this type of capital? Apartments are currently hot and probably will be for another five years. Office and industrial are in favor under the right set of circumstances. One example are owner occupied properties. Land development is still treated cautiously, not speculatively. Solid developers with a sound plan can get financed.
Here's a four letter word - JOBS.
- What's happening,
- when will the job market improve?
- Are businesses hiring? The last question is a big one, Businesses seem to be going low key on hiring trying to hold on to the efficiencies developed during the downturn while also taking a wait and see concerning the new health care cost system to be implemented later this year. The economy is improving, but without a substantial improvement in hiring. And until people feel more comfortable in that area they won't open their wallets and go on a spending spree.
What is your current experience with the financing market?
This article by
Robert L. Yale, CCIM
Sperry Van Ness/ComVest Realty
These charts and the background information have been contributed by Dr. Sam Chandon, Ph D, an economist at th Wharton School, chief economist for Real Capital Analytics and in practice at Chamdon Economics, 825 Third Avenue, 37th Floor, New York, NY 10022. We would welcome your comments concerning the article above and will be pleased to pass on your questions for further insight.
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