The Credit Crunch is Hurting Commercial Real Estate

Thomson financial published a good article** on this this morning. Commercial real estate is (and has been) dead here in southeastern Michigan now for a while, except for apartments, which keep going strong. I’m seeing low vacancies, strong rental demand, and healthy rents. This combined with fantastic cap rates and upside potential make this a great time to own apartment buildings here – if you can get them financed or buy them on a land contract. (You can read more about my financing experience in my Apartment Quest series). Here’s the article:

Thomson Financial News
Slowdown, credit crunch now hurting commercial real estate
06.18.08, 11:15 AM ET

WASHINGTON (Thomson Financial) – The economic slowdown and the credit crunch are beginning to cause significant damage to the commercial real estate business, the National Association of Realtors (NAR) said in a report Wednesday.

Until recently, the commercial side of the business had been steady in contrast to the housing collapse. Now, ‘tight credit availability has significantly slowed the volume of commercial real estate transactions,’ said Patricia Nooney of the Realtors Commercial Alliance Committee.

Investment in commercial real estate has fallen dramatically to $48.2 billion in the first four months of 2008, down 69.5 percent from the $157.8 billion during the same period in 2007 when credit was easily available.

Also, vacancy rates are rising and rent gains are slowing according to the report.

NAR chief economist Lawrence Yun said: ‘Slow economic growth is lowering demand for commercial space, mostly in the office and industrial sectors.’

One bright spot in the picture is that because of the decline of the dollar, there has been growing interest among foreign investors in US properties.

**Thanks to my colleague Bob Woods for telling me about the article. He’s at http://blog.sibdu.com/