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Is the commercial real estate market teetering on disaster?

On Behalf of | Aug 27, 2016 | Commercial Leases

In a number of our posts, we have noted how the desire for commercial real estate may be slowing even though some of the prime indicators (e.g. vacancy rates, cost per square foot, overall economic growth) may suggest that there are still opportunities for investors to take advantage of. However, the key is to purchase a property or enter into a development agreement at the right time.

For many investors, the best time to do so is at the lowest point of a downturn, and according to a recent report, the time to invest in commercial real estate may be coming soon. The report suggests that the next economic downturn may seriously affect the commercial real estate market, especially considering how some retailers are struggling against their online counterparts.

Analysts worry about vacancy rates being higher than their pre-recession levels, but with so much more commercial space available compared to pre-recession rates, the elevated number of vacancies could be attributable to overbuilding. Also, the market for commercial mortgage backed securities (CMBS) is not behaving normally. The market has not bounced back since a correction in the early part of 2016 sent prices spiraling downward.

Further, with the FDIC, Federal Reserve and the Office of the Comptroller of the Currency expressing concerns over underwriting standards for commercial real estate loans, these factors all spell potential disaster for the market.

In times like this, it is important to review one’s legal options in the event the market sees a crash reminiscent of the 2008 housing crisis.