Over the past year commercial real estate has been following the steady declines seen in residential real estate. This can be seen by looking no further than the fact that prices are down nearly 40% from 2007 and office vacancies have increased by 5% in 2009 alone. However, residential real estate has slowly began turning around, this has caused many investors and analysts to wonder if commercial real estate will stabilize in 2010.
Changing Times, Changing World:
According to a survey conducted by Grub and Ellis, commercial real estate is expected to decline by another 10% to 20%. At which point, the markets will go into the stage of flat lining, this is where prices will not decrease or increase rapidly. This is contrary to what some have been prognosticating for commercial real estate, with it often being called the next shoe to drop. However, according to the Grubb and Ellis survey, when you look at the actual values of the commercial real estate mortgage portfolio at various banks, it is clear that their values are significantly higher in spite of seeing sharp price declines last year.
Nationwide Grubb and Ellis expect vacancies to decline even more, with the total amount reaching 18.5% to 19.0%. This is the highest number on record since the firm began conducting the survey in 1986. When you look at the different sectors of commercial real estate it is clear that the decline will be felt in all areas. This can be seen with industrial sector expected to post vacancy rates of 11.4%, while retail is expected to continue to remain weak. These different rising vacancies have meant that many landlords are unable to make their mortgage payments, leading to a rise in foreclosures of commercial real estate. A good example of this would be the Hancock Tower of Boston which is facing foreclosure because of rising vacancies.
What This Means for Boston Real Estate?
When you look at what the different figures mean for Boston, it is clear that the city’s commercial real estate market will face a mixed recovery of starts and stops. A good example of this can be seen with the predictions for Boston commercial property vacancies, as offices are expected to see a 14.2% increase and 16.2% in industrial.
What all of this shows, is that 2010 Boston commercial real estate will face downward pressure as rising vacancies fuel foreclosures. However, towards the end of year is when a recovery is expected in these markets as commercial real estate works through similar challenges as residential.
Nice post, 2010 should be a rocky year for CRE. Not sure if it will flatten out in 2010. We’ve got a lot of commercial real loans going into special servicing that will continue to hamper the CRE recovery