Tuesday, July 28, 2009

Not over til its over

I'm glad to see people saying the recession is ending or slowing. That does not mean it is over for commercial real estate. Consider the following:

  1. Lenders are not lending what borrowers need, and loan activity is declining. I'm not sure whether that is a function of less demand or just futility. I've heard some real horror stories from clients, regardless of credit.
  2. If this is truly a jobless recovery, then it will be hard for the office sector to rebound. Add the sublease market to the equation and you see what I mean. And delinquencies appear to be on the rise.
  3. Ditto the hotel sector. With less business and leisure travel RevPAR isn't going to rebound just yet.
  4. And retail? Well, there it is a matter of location. The best ones will still be ok and go forward. But tenants are smelling blood. And retrades like that makes it hard to price deals and loans going forward.
Now, that does not mean things will not somehow turn on a dime and we'll all be yelling "winner, winner, chicken dinner" at Christmas time. Just remember, when people are too optimistic or too pessimistic, they are probably wrong.


CountingSheep said...

My wife is looking for office space and the buildings just are not working with her. It is very odd. One space is perfect for her and has been vacant for about 5 years. They don't want to work with her because they hope BofA will expand into the space. I think I should have her try again given today's BofA announcement about cutting back on space.

The area she is looking has very little class "A" space so it may be unusual and not reflective of the market in general.

David Stejkowski said...

That is very odd. My only thought is that owners and lenders just love the so-called credit tenants.
But leaving space open for years just to hope someone takes it makes little sense. It is even worse if the landlord demands a relocation right within the building in the lease and your wife's firm agrees to that. I'm not a big fan of relocation rights, but that is usually how I handle these kinds of issues as it gets you to a win-win.

schaumburgofficespace said...

I am a commercial real estate agent in Schaumburg, IL and happened to come across your blogsite from another blog posted by an agent in New York. I feel your information is pertinent to mine.

In regards to your article “Not over til it’s over”, I’m in agreement with you. While the economy may slowly be steadying, I believe commercial real estate is far from feeling that. Last year when the economy really began falling significantly and quickly, my business was busy! This year, while I am still very busy, much of that ‘busy-ness’ never closes. I have found many people look to shop the market, but when it comes to sign on the dotted line, many are afraid to. Or worse yet, others shop the market and find great bargains, but think that if they wait even longer they’ll find a better bargain. The problem with this way of thinking is that it hinders movement and progression in the market, thus paralyzing the stability that we need.

Loretta said...

Great Post. You should feature your services/products on the Schaumburg community, classifieds section.