The National Association of Realtors® (NAR) released its latest projections for commercial real estate (CRE). The outlook remains grim as the NAR forecasts no recovery in CRE this year. Rents are expected to decline across all segments (although slightly lower than last year’s rent declines) as vacancy rates remain extremely high. CRE is not expected to recover until after employment materially improves. Since the NAR does not anticipate this improvement until later this year, it is projecting a CRE recovery no earlier than 2011.
The NAR also notes a related index finally stopped declining in the last quarter:
“The Society of Industrial and Office Realtors®, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 700 local market experts, suggests a flattening level of business activity in upcoming quarters with 55 percent of members expecting the market to improve in the second quarter.
The SIOR index rose 0.2 percentage point to 35.5 in the fourth quarter, compared with a level of 100 that represents a balanced marketplace. This is the first gain following 11 consecutive quarterly declines. Although some indicators show that a decline in commercial property values is beginning to flatten, 86 percent of respondents report prices are below replacement costs.”
A lot of us have been waiting for the “other shoe” to drop in CRE. For now, it seems, the on-going problems in this sector are already broadly known and recognized, and, perhaps, as hard as it remains for me to believe, fully discounted in financial markets. Only a fresh deterioration in business conditions is likely to take CRE’s recovery off-track. The second half of this year will be critical.
“Did Dubai Signal the Next Bump in the Road?“ from December 2, 2009 paints a much grimmer picture of the prospects for commercial real estate by taking a global perspective. The Congressional Oversight Panel also released a report two weeks ago warning about the risk of CRE generating “prolonged weakness” in the financial system. Chair Elizabeth Warren introduces the report in the following video:
Be careful out there!
Full disclosure: no positions