Daily Obervation - Commercial Real Estate Report

The following information is directly pasted from an e-mail that I received today from the Federal Reserve Bank of San Francisco – Division of Banking Supervision & Regulation. The gist of the report is that the market is tighter than it was six months ago, but there is still opportunity.

Stay focused and open minded as you read this. You may have to read it twice as I did to get the "good" from it. For those who would like the entire report send me an email As my regular readers know I don't usually cut and paste other peoples reports but this is a must read.

CRE Market Conditions & Outlook *
Executive Summary
• Market fundamentals and outlook: The outlook for commercial real estate (defined in this report as income property) is deteriorating due to the slowing economy, the ongoing paralysis in credit markets, wide CMBS spreads, and more costly financing for CRE transactions and projects.

CRE property sales transactions have dropped off dramatically with financing more difficult to obtain and more costly. Vacancy rates are rising and rent growth is slowing as the economy slows.

CRE markets will continue to weaken but should avoid the kind of collapse seen in residential real estate.

CRE markets are not overbuilt as they were in the late 1980s. For example, the office completion rate (as a percentage of existing stock) was a minimal 1.4% in 2006 and 1.7% in 2007, compared to an average yearly rate of nearly 6% in the 1980s.

Supply and demand remain reasonably balanced with vacancy rates expected to increase moderately as tenant demand softens over the next year, but only to levels below those of 2001-2002 period.

Rent growth should remain positive in most local markets as rents rollover from those set in 2002-2003.

PS: The Special Reports that I have alluded to over the last thirty days are complete. Our new website for our book is a week away at most. So please if you want the Ten Secrets Your Lender Does Not Want You To Know send me an e-mail and we should be able to start delivering the free ten reports by Monday. You will need to confirm the return e-mail to opt into this special mailing.