Saturday, March 28, 2009

Commercial Real Estate Is Next

It appears that in 2009 we will see commercial real estate face the same precipitous decline as we've seen in residential real estate over the last few years. Some of which, in certain areas, has already started in 2008.

Many banks are facing loan defaults on commercial mortgages. Lingling Wei, of the Wall Street Journal, explains, "The delinquency rate on about $700 billion in securitized loans backed by office buildings, hotels, stores, and other investment property has more than doubled since September to 1.8 percent this month."

U.S. commercial sales volume fell 70 percent in 2008. Prices are down 20 percent.

We can see this decline coming over the horizon and like the residential market, some areas are being hit earlier and harder. As Earl Webb, chief executive of Lang LaSalle Capital Markets, commented, "It may take another three or four quarters for broad based distress to reach the sales market."

So, the commercial collapse (alongside the residential) will add to the tough times in 2009 and probably hamper economic growth until late 2010 at best.

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