Tuesday, March 4, 2008

Commercial construction slowdown? Depends.

Well, I guess this is why I am the lawyer and not the business guy. The Journal reports that real spending in nonresidential construction is declining and that there maybe a glut of certain types of space such as retail and office. If construction declines, then workers are out of jobs, meaning less spending....you get the picture. And this is on top of yesterday's WSJ story about CRE write downs, stating that even Goldman Sachs is predicting a decline of 21-26% in prices over the next two years.

So, what's the deal? I've said before that a 15% correction would not surprise me because of the irrational exuberance in some sectors that going on for so long. 25% would surprise me, but the Goldman folks have certainly been on the money before!

Much of all this is, of course, local. (Real estate is just that way, after all.) I still know areas where they still cannot build fast enough, and those developers will be all right. But in other places and neighborhoods, not so much. Stores are empty, retailers are cutting back expansion plans, construction is slowing to a snail's pace, and you are even seeing some workouts at the early stages of a developer deal. That is why location always has been and always will be vital to making a deal work.

So, maybe I am not as worried as the Goldman folks or reporters at the Journal. What I do worry about is that sometimes bad news feeds upon itself and puts everyone into a funk about the economy. I actually wish someone would declare a recession already. Why? Look here.