The National Association of Realtors (NAR) has seen the light at the end of the tunnel for the commercial real estate sector. However, NAR believes the sector will remain in the tunnel until 2011.
Lawrence Yun, chief economist for NAR, cites a number of factors for delaying the rebound of commercial real estate.
‘Because of the lingering impact from the deep recession over the past two years, vacancy rates will trend higher, and many commercial property owners will need to make rent concessions,’ he says. ‘With the job market expected to turn for the better later this year, we'll see rising demand for office and warehouse space, but that isn't likely before 2011. At the same time, improved consumer confidence would help sustain the retail sector and encourage more people to enter the rental market.’
On a positive note, Yun cites a pair of developments that will help the sector recover: the issuance of commercial mortgage-backed bonds by the Federal Reserve's Term Asset-Backed Loan Facility and the efforts by regulators to encourage lenders into extending terms for existing commercial loans.
‘We have a long way to go for satisfactory levels of commercial credit, but these are important first steps,’ he continues. ‘Given that about $1.4 trillion in commercial debt will come due over the next three years, more extensive action is needed, and the Fed needs to more actively help resuscitate commercial mortgage-backed securities. The credit improvement will mean more commercial property sales in 2010, even some at deeply discounted prices.’
However, Yun adds that commercial vacancy rates are still high in major metropolitan areas, and he predicts the period from the fourth quarter of 2009 to the first quarter of 2010 will see increasing vacancies in the office, industrial and retail markets. The only declining vacancy rates being forecasted for the near term involve the multifamily market.
SOURCE: National Association of Realtors