Posts Tagged ‘commercial real estate’
Commercial Space Needs – an Upward Trend?
Posted by Sibet B Freides in Real Estate Economics, Real Estate Trends on October 25th, 2011
According to a recent article in the Atlanta Business Chronicle, space planners for commercial office space provide excellent insight into leasing activity. They help evaluate space needs and functionality and provide future space demand in addition to trends in office design, often leading to new construction.
For the first half of 2011, their activity projected they would have their best year since 2007, as it relates to office space needs. If the trend continues, total projects will be up 30 percent over 2010 and 45 percent over 2009.
Because of the state of today’s market, every company is looking to see how they can lower operating expenses and increase worker productivity.
The real estate market is not an accurate indicator of job growth as it relates to absorbed space but it does create many jobs through projects. Industries experiencing job growth driven by these types of projects include construction, manufacturing, real estate consulting, project management, and design.
It seems as if the latest trends are bringing more adaptive re-use of space rather than ground-up construction. The ABC predicts that this trend will probably continue until at least three to four years into a solid economic recovery.
I want to share with you a quick excerpt about Federal Reserve Chairman Ben S. Bernanke. He spoke at the Economic Club of New York last week about the policy on commercial loans. Perhaps this will keep commercial real estate from dipping s far as residential did.
While I am on the topic of bank lending, I would like to add a few words about commercial real estate (CRE). Demand for commercial property has dropped as the economy has weakened, leading to significant declines in property values, increased vacancy rates, and falling rents. These poor fundamentals have caused a sharp deterioration in the credit quality of CRE loans on banks’ books and of the loans that back commercial mortgage-backed securities (CMBS). Pressures may be particularly acute at smaller regional and community banks that entered the crisis with high concentrations of CRE loans.
In response, banks have been reducing their exposure to these loans quite rapidly in recent months. Meanwhile, the market for securitizations backed by these loans remains all but closed. With nearly $500 billion of CRE loans scheduled to mature annually over the next few years, the performance of this sector depends critically on the ability of borrowers to refinance many of those loans. Especially if CMBS financing remains unavailable, banks will face the tough decision of whether to roll over maturing debt or to foreclose.
Recognizing the importance of this sector for the economic recovery, the Federal Reserve has extended the TALF programs for existing CMBS through March 2010 and newly structured CMBS through June. Moreover, the banking agencies recently encouraged banks to work with their credit worthy borrowers to restructure troubled CRE loans in a prudent manner, and reminded examiners that–absent other adverse factors–a loan should not be classified as impaired based solely on a decline in collateral value.