Commercial Real Estate: State of the Market
America’s commercial real estate market is alive and well as we will see in indicators to be released August 28th. In Commercial multi family still looks best due to the large number of new renter households comprised of folk who lost their homes and others who can’t qualify for financing as well as first time buyers choosing to rent or live with family will they pay off student debt and find good paying employment. This will subside as folks recover from credit events and can buy again (just last week FHA announced reduced waiting period of only 12 months) and as investors lose interest (several funds are seeing that buying homes is the easy part – renovating, leasing and managing scattered SF residences is tough), and more folks elect to buy due to rising rents and to beat rising interest rates. Vacancy will increase and rents will decrease when this happens. Anything under 5% is considered a landlord’s market. At about 4.1% now, we’re approaching that mark.
Size Matters. The other noteworthy trend in CRE is smaller projects still struggling for financing while larger projects have less of a problem with this thanks in part to a recovering CMSB market. I can tell you first hand from the banks I work with in my law practice, they are all aggressively looking for deals, but not taking any risks. CRE Realtors I work with tell me that about half of their smaller purchase-sale deals (under $2.5 million) still cancel due to lack of financing.
Office, Retail and Industrial are all improving with vacancy rates in the 10 to 15% range nationwide. The issue here is still wages, employment, consumer spending, owner uncertainty. Recovery will follow housing.