Wednesday, February 23, 2011
Commercial Real Estate Market Improvement: Slow, Not Necessarily Steady
Although the commercial real estate market has suffered losses of $80 billion in recent years, analysts are encouraged by rising property values – some areas seeing increases of 30% from two years ago. Commercial property values appear to be increasing most in larger cities and metropolitan areas, whereas property values continue to struggle in smaller towns and cities throughout the country. The prevalence of low property values in smaller towns is likely a large contributing factor to the overall rate of delinquent commercial-mortgage-backed securities, which have increased more than 8% since 2007.
The recent rise in commercial property values has helped revitalize the commercial market. However, analysts are still noting stunted growth due to lenders' propensity to hold off foreclosure proceedings in favor of negotiating agreements with borrowers who cannot pay according to the original terms of their loan.
Meanwhile, experts point out that rental and occupancy rate for commercial real estate can only truly bounce back and reach pre-recession rates when new jobs are created and demand for this type of real estate becomes stronger. The commercial property market cannot continue to grow and prosper without a vast increase in new jobs; with a mere 36,000 new jobs in January 2011, the commercial market will not be able to sustain the growth that it has seen in the past year.