Commercial Real Estate Fundamentals Are Down, But Maybe Not for Long

Commercial real estate fundamentals are taking a beating in the current economy with corporate layoffs, a drop-off in consumer spending and general uncertainty causing vacancy rates to rise and rental rates to fall. But the pain may not last long.

Writing in the Spring 2009 Linneman Letter, NAI Global Chief Economist Dr. Peter Linneman notes commercial contracts have fallen off a cliff as few new developments outside of multifamily have secured construction loan commitments since the start of 2008. Linneman expects little improvement in new construction in 2010, despite declining construction costs as weak demand and weak financing sources will shelve all development plans outside of multifamily.

This means that as demand recovers in 2010 it will find little new space coming online to compete with existing space.