Sunday, January 27, 2008
Mish Shedlock-- "Commercial Real Estate Collapse Underway"...
And the dominoes continue to fall.
I don't go to the malls here in the Memphis area. They are all crammed into one area, the traffic is insane, and the drivers in Memphis are notoriously bad, and uninsured. I DO see plenty of empty commercial spaces in fairly newly constructed strips in my area, north of Memphis, and suspect that this translates over into major malls, as well.
What are you all seeing at those malls?
via Mish's Global Economic Trend Analysis
Here, Mike "Mish" Shedlock comments on one of the articles within his post (in bold).
US office property sales fell by the largest amount since the September 11 2001 terror attacks in the final three months of last year, raising fears that commercial real estate is heading for a meltdown.
The volume of office space sold in the final quarter of 2007 fell 42 per cent to $26.5bn, compared with the same period in 2006, according to data released on Friday by Real Capital Analytics, a real estate data company. Sales of property portfolios fell to $5bn, after logging $105bn in the first three quarters.
My Comment: First transactions plunge. The property values plunge. This is going to play out just like residential.
"What's happening now is a capital markets event," said Dan Fasulo, managing director at RCA.
Spreads on CMBX, an index that tracks commercial mortgage backed securities, have recently suggested that default rates are expected to reach three times historical levels. But analysts say commercial property is not expected to suffer the same slump as housing because it has not experienced such high levels of overbuilding.
My Comment: What analysts are they talking to? Commercial real estate overexpansion in the face of a consumer led recession is monumental.
However, if the US economy experiences a deep recession, commercial property is considered to be at risk. Demand for space is largely driven by the health of the business environment.
"The wildcard is whether or not the US falls into a recession.
My Comment: The wildcard is whether or not we have a depression. We are already in a recession.
What's causing the market to hold up is the high level of occupancy and high level of rent," said Mr Fasulo. "Unless [there is a recession] you are not going to see a [major] deterioration."
My Comment: The market is crumbling as I type. Vacancies will soar. Banks are going to be stuck with overvalued commercial real estate for years. Too many projects were built on too optimistic lease rates and occupancy rates.
More at the link.
If you work at a mall store, especially one of the smaller, non-anchor stores, I wouldn't be considering a major purchase right now. Maintain your car, enjoy what you already have, and save your money for the coming rainstorm.
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Labels: Real Estate Crash, US Economy
