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    Friday, May 23, 2008

    Commercial Real Estate Update

    WASHINGTON (MarketWatch) -- Commercial real estate markets should weaken in the months ahead, according to reports released Wednesday by trade groups representing realtors and architects.
    The commercial real estate leading index fell 0.7% in the first quarter, the third straight decline, the National Association of Realtors said. The index is 0.8% below the level of a year ago, the first negative year-over-year showing in five years. The index is based on 13 separate indicators, including industrial production, REIT prices and returns, job growth, income growth, business sales and durable-goods shipments.
    Meanwhile, the American Institute of Architects reported its architectural billing index rose to 45.5 in April from the historic low of 39.7 in March, with scores below 50 indicating declining billings. The AIA index leads nonresidential construction spending by six to nine months.
    An index tracking new inquiries rose to 53.9 from a record low 48.
    "This uptick shows that the slowdown is beginning to moderate," said AIA chief economist Kermit Baker. Most regions don't have an oversupply of buildings, providing "hope that this weak patch may be relatively short-lived," he said.
    'This uptick shows that the slowdown is beginning to moderate.'
    — Kermit Baker, AIA
    Private investment in nonresidential structures is likely to subtract between a third and a half percentage point from gross domestic product over the next two or three quarters, said Lawrence Yun, chief economist for the NAR, the real estate trade association.
    In the first quarter, business investment in structures subtracted 0.2 percentage point from GDP, but that figure is likely to be revised higher in next week's updated estimate.
    Yun said it's "no surprise" that the commercial sector could weaken because of tight credit and the weak economy.
    Two weeks ago, the Federal Reserve said 78% of banks in its quarterly survey had tightened lending standards for commercial real estate loans, and 52% reported weaker demand for such loans.
    In a separate survey of attitudes, realtors who specialize in office and industrial properties said they anticipate a much lower level of business activity in the coming quarters.
    On Monday, Moody's Investors Service said commercial real estate prices fell 2.3% in March, the steepest one-month decline in at least eight years. Retail property prices were down 5.7% from their peak last year.
    Rex Nutting is Washington bureau chief of MarketWatch.

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