Commercial real estate takes hit on all sides

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The residential housing market went into a tailspin over a burst housing bubble and a whole lot of bad mortgages. The commercial real estate market has suffered a different sort of one-two punch.

Between the recession and the financial crisis, many commercial property owners were left struggling, and many banks were stuck with troubled loans on everything from malls and hotels to offices.

The commercial real estate market's fortunes depend largely on free-flowing credit markets and spending by businesses and consumers -- neither of which economists expect anytime soon.

Q: What properties are considered commercial real estate?

A: Generally, there are five categories: office space, which can include several floors of a skyscraper or a single room; industrial, which encompasses warehouse and factory space; retail, which ranges from a small storefront to a big-box space used by a large retailer such as Costco; apartment complexes; and hotels.

Q: How does the commercial real estate market fit into the U.S. economy?

A: By some estimates, the commercial real estate sector helps support more than 9 million jobs and generates billions of dollars in taxes.

When the economy is growing, businesses' demand for space grows. Consumers also tend to spend more, which boosts retailers and hotel operators, and stokes demand for retail space.

A healthy economy typically translates into more jobs, which helps fuel demand for apartments. When demand is up, landlords enjoy low vacancy rates and steady rental income, and are more able to raise rental rates.

But when the economy slows or enters recession, businesses scale back their needs for office and industrial space and trim payrolls. Retail chains see sales tumble and might be forced out of business.

Q: What's happened to the value of commercial real estate?

A: So far, commercial property values have declined as much as 45 percent off their peak in 2007, Richard Parkus, an analyst with Deutsche Bank Securities, recently said.

Q: Is the government helping?

A: Last month, the government opened part of the consumer lending program known as the Term-Asset-Backed Securities Loan Facility to commercial real estate loans. The hope is that will boost the availability of loans, helping to prevent defaults and facilitate sales.

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Little Lamb
Little Lamb 07/23/09 - 10:47 am
The government is helping to

The government is helping to prolong the agony by printing money (resulting in higher prices and, soon, wages - money becomes worth less) and by raising taxes.

zigzag 07/23/09 - 03:59 pm
At least the downturn has

At least the downturn has slowed Meybohm from building strip centers all over Columbia County - none of which are fully leased. I hope they get stuck with them all!

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