Monday, May 19, 2008

Commercial Real Estate: "The problems are in all of it"

(Calculated Risk) First a great quote via CNNMoney:

"On the commercial side, best I can tell the problems are in all of it - offices, retail, hotels. I think we will see a prolonged decline."
Kermit Baker, chief economist for the American Institute of Architects, CNNMoney May 17, 2008
Wow. Clearly Kermit Baker is not a NAR economist! I think he is correct, and here is my analysis of three key categories of commercial: office buildings, multimerchandise shopping, and lodging with some estimated declines in investment.

And from a Reuters article: Retail properties dressed for distress
The retail sector is expected to soften through 2009, according to a report by real estate brokerage Marcus & Millichap. The report, obtained by Reuters, forecasts the overall retail real estate vacancy rate will rise 1.4 percentage points this year to 11.1 percent, after a 0.9 percentage-point increase last year.
...
While demand slows, the supply of new shopping centers is expected to continue to grow, albeit at a slower pace. Marcus & Millichap forecasts about 131 million square feet of new shopping centers should be completed this year, down from 145 million square feet in 2007.
...
Properties in once-hot residential markets of southwest Florida; the California's Inland Empire areas, such as Riverside and San Bernardino; Phoenix; and Las Vegas are of particular concern.

"In some of those markets, what you saw were properties that were built to service a consumer base that never materialized," [Spencer Haber, chief executive of H2 Capital Partners] said.
Another great quote: "a consumer base that never materialized".

For more, here is my recent and somewhat lengthy overview on CRE.

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