Commercial development showing slow signs of growth

Filed under: Opinion,Print |

When it comes to the national commercial real estate market, the past few years have not been kind.

The national recession significantly impacted every major commercial property type, causing occupancies and rental rates to fall and sales activity to significantly slow down.

The good news is that over the past six to nine months, conditions have been slowly improving in step with the slow recovery in the national economy. At the end of 2010, most national analysts forecasted that the national market’s improvement would continue at its slow, steady pace; however, first-quarter statistics showed that the recovery may have hit a much higher gear than originally anticipated.

The first promising sign came in the form of improving occupancies in the major commercial property types during the first quarter of 2011. According to CoStar, the national retail market’s vacancy rate declined to 7.1 percent, down from the market high of 7.4 percent that was seen in 2009. The vacancy decrease was the result of 10.1 million square feet of absorption.

The industrial market also experienced positive absorption of 32.3 million square feet, causing vacancy to fall to 9.9 percent, down from the market-high vacancy of 10.2 percent in 2009. The office sector did not experience a decrease in vacancy, but there was no change in market conditions. Vacancy held steady at 12.6 percent.

Another sign of improving national conditions came in the form of the decreasing amount of commercial debt. Just more than a year ago, many analysts were confident that the industry was headed to a commercial mortgage meltdown as a result of the rising amount of debt due over the next five years. It appears such a catastrophe has been averted for now.

The Mortgage Bankers Association reported that mortgage defaults for office, retail and industrial loans dropped for the first time during the first quarter to 4.38 percent, down from 4.36 percent.

Moreover, Real Capital Analytics said that the amount of commercial distressed assets declined to $181 billion in February from an industry high of $188 billion in September of 2010.

Granted, there still remains a tremendous amount of distressed commercial loans, some of which are so far underwater that there is little hope for their owners to recover their properties.

As a result, commercial lending will continue to be challenged, but at least not to the breaking point that many had feared.