Commercial Real Estate Prices

Commercial Indicators

Posted on Tuesday, September 1, 2009

If progress can be measured by folks wanting to participate in yet another bailout initiative then progress seems clear for the TALK program. Investors asked the Feds for $2.3 billion to be collateralized by those all too hard to sell/until Uncle Sam’s paying no one wants to buy CMBS created before this year. Some jump from the $668.9 million only a month earlier. None of the requests are for bonds backed by loans on skyscrapers, shopping malls, apartments or hotels. Last month, only one commercial- mortgage bond was rejected as too risky by the Fed for TALF collateral. To qualify securities need to have top credit ratings, not be under review for downgrades and rank among the senior-most classes of a securitization. In another measure, the PPIP, announced July 8th accepts a broader range of commercial- and residential-mortgage bonds originally rated AAA. In 2007, a record $237 billion of commercial-mortgage bonds were sold, before sales fell to $12.2 billion last year and none this year. But Ben extended the TALF for commercial-mortgage bonds into next year, acknowledging that CRE values have fallen 36 percent from their October 2007 peak.
The office sector continues to suffer the most from job losses, which reduces the demand for space. Vacancy rates are predicted to increase 18.8% percent by Q2 2010. Annual rent in the office sector is projected to fall 14.1% this year and another 10.0% in 2010.
The contracting global economy has constricted the industrial sector. Vacancy rates are likely to rise to 15.0% in Q2 2010. Annual industrial rent should fall 11.4% this year and another 11.7% in 2010. Because much construction in recent years was customized to meet specific industrial needs, many obsolete structures remain on the market.
Given a pattern of weak consumer spending, the retail vacancy rate is forecast to edge up to 12.9%. Average retail rent is likely to fall 6.1% in 2009 and another 4.9% next year.
The apartment rental market – multifamily housing – is facing higher home sales by first-time buyers, but also is experiencing increased demand from families who have lost their homes. Multifamily vacancy rates should be nominally reduced over the next year. But average rent is projected to decline a bi this year as well but then rise slightly in 2010. This stats are thanks to NAR.

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