The Real Estate Deal

Editor Cindy Zetts dishes on real-estate and development around Puget Sound: She lived in apartments, townhomes and houses -- a dozen of them in four states -- before settling in the Seattle area in 1997. After taking a bath on the sale of her first home, in South Florida, she vowed to wise up about real estate. She bought a house in Covington 10 years ago because, well, she could afford one there.

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November 10, 2008 11:36 AM

Commercial real-estate market feels the crunch

Posted by Cindy Zetts

From reporter Elizabeth Rhodes, at the National Association of Realtors conference in Orlando:

ORLANDO, Fla. -- Real estate agents attending the National Association of Realtors convention in Orlando have been grumbling a lot about how tough it is for their customers to get loans.

It's not that loans aren't available. It's that lenders, badly burned by mortgage fraud, have tightened their underwriting standards, so a loan application that used to sail through now is being checked and double checked.

But hard as it is for homebuyers to get money, buyers of commercial properties have it worse, said Lawrence Yun, the Realtors group's chief economist. Even sound transactions to solid buyers in healthy markets have been curtailed, he said, although credit is starting to loosen somewhat.

"But we have a long way to go to get back to normal," Yun told Realtors.

Job loss is making the situation worse.

Doug Duncan, chief economist at Fannie Mae said 1.3 million jobs have been lost this year, with half a million of those coming in the past two months.

"With the exception of the multifamily sector, the loss of jobs is reducing demand in commercial real estate to the point where many markets can expect rents to weaken," Yun said.

His national forecast:

-- Job loss is reducing the need for office space. Thus office vacancy rates are projected to rise from 12.9 percent in the second quarter of this year to 14.4 percent in second quarter 2009.

-- Consumer spending will continue to be weak, leading to a higher retail vacancy rate. In the second quarter of this year, the retail vacancy rate was 9.7 percent. In next year's second quarter, it is likely to hit 10.4 percent. As a result, rents, which were up a modest 1.2 percent this year are expected to contract 0.9 percent in 2009.

-- Vacancies in industrial space are forecast to hit 10.8 percent in the second quarter of next year, compared with 9.9 percent for the same period this year. Rents will be up 1 percent next year.
The key to recovery, Yun and Duncan agreed, is housing. Both are looking to the new administration to structure an effective stimulus plan. If that happens, look for things to improve.

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