July commercial Real Estate Update

Commercial Real Estate Easing in Economic Slowdown
Paul Partyka, Editor , American Coin-Op
Published 07/07/2008 - 9:01 a.m. CT

Foreign buyers are focused on retail strip centers in Southern California, Chicago, the Northeast and the Southeast, according to NAR. (Photo: iStockphoto.com/sjlocke).
ABOUT THE AUTHOR
Paul Partyka, Editor
Website:http://www.americancoin...
Email:ppartyka@crain.com
WASHINGTON — Are you looking for a new laundry? Commercial real estate vacancies are trending up modestly, while investment has dropped sharply in the wake of the credit crunch, according to the National Association of Realtors (NAR). “Although the supply-demand fundamentals are broadly favorable in most commercial real estate markets, vacancy rates are rising modestly and rent gains are slowing,” says Lawrence Yun, NAR chief economist. “Slow economic growth is lowering the demand for commercial space, mostly in the office and industrial sectors.”Tight credit availability has significantly slowed the volume of commercial real estate transactions, says Patricia Nooney, chair of the Realtors commercial alliance committee.Vacancy rates in the retail sector will probably edge up to 9.3% in the fourth quarter from 9.2% in the fourth quarter of 2007. Average retail rent is expected to rise 1.3% in 2008, compared with a 2.9% gain last year. Retail transaction volume during the first four months of 2008 totaled $7.5 billion, significantly below the $27.7 billion in the same period last year. Strip center transaction volume is down 77% from a year ago.

Investment in commercial real estate during the first four months of 2008 was $48.2 billion, down 69.5% from $157.8 billion during the same period in 2007 when the credit markets were functioning normally (those totals do not include transactions valued at less than $5 million or investments in the hospitality sector), NAR reports.

Chris' comments: It looks to me like we are going to see a continuing series of reports just like this one as all types of real estate in the U.S. take their medicine from the over-leveraging that has occurred in just about every segment of the U.S. economy. The solution is one that has to evolve over time. Until bank balance sheets recover to historic levels of normalcy and the consumer begins to do the same, the psychology of the market will remain negative, reinforcing the obvious caution that has enveloped economic activity and causing this "correction" to continue it's deliberate pace.