Outlook 2010
| Read comments | Add comment / Rate this Article | Article by: Mark Casey |
We just concluded the first full calendar year following the world financial crisis in 2008. Whether owner, banker, broker or tenant, 2009 was a turbulent and challenging year for commercial real estate. The question before us now is what will 2010 be like for commercial real estate. Here is my forecast for 2010.
Demand for Space Slowly Returns. The demand for retail space is linked to consumer demand. While the recent holiday sales figures are not robust, on national basis, holiday sales were up 3.6% over the 2008 shopping season. Office and industrial space absorption, on the other hand, is linked to job growth. With a national unemployment rate of 10%, demand for office/industrial space is slack.
As new hiring occurs 2010, demand for office/industrial space and apartments will increase. Overall we will see modest, yet positive absorption of retail/office/industrial space as well as for multi-unit housing in 2010.
Green Building becomes Norm. While few new private commercial projects will break ground in 2010, those which do will be greener than at any previous time. According to a poll conducted by National Real Estate Investor, the national percentage of developers owning, leasing or managing green buildings is up from 39% in 2007 to 68% with that figure rising to 89% over the next five years. The need for greater energy efficiency and reduction in green-house gas emissions will profoundly influence new construction and building retro-fits in 2010 and beyond.
Lenders work with Borrowers to Avoid Foreclosure Wave. In spite of doom-and-gloom predictions of commercial real estate foreclosures being the ‘second shoe to drop’ on the economy, I am generally optimistic. There is nearly $250-Billion in commercial real estate loans coming due in 2010. That is a big number. However, institutional owners, such as REITs have cash to weather the storm. For the non-institutionally-owned properties it makes sense for the lenders and borrower to work together. Commercial banks are not set-up to own and manage properties. Yes, there will be many commercial foreclosures in 2010, but it will not be the disaster predicted by some.
Tenants and Landlords Cooperate. Despite the modest net absorption of commercial space, tenants with staying-power have leverage negotiating and re-negotiating their leases. Savvy landlords will do everything they can to keep their existing tenant base, and to sign new leases with the few quality tenants who are out looking for new space in 2010. Landlords and tenants are in this together, and will work together to get through this economic quagmire.
Year of the Buyer. For businesses and investors with the cash and/or borrowing capacity, 2010 will be the year to buy. Interest rates remain at historic lows, the SBA has extended its fee-waiver for owner/occupants, and commercial real estate prices are the lowest they have been in years. Lock in your loan rates early because once inflation returns in late 2010 this window of opportunity will be narrowed.
This is my forecast for the year before us. However it turns out, I wish you the best for 2010 and beyond.
This information is not intended to replace qualified legal and/or tax advisors. Every taxpayer should review their specific transaction with their own legal and/or tax counsel.
