March 3, 2010

US Realtors Doubt Commercial Sector Will Improve In '10

WASHINGTON - Realtors doubt the U.S. commercial real estate sector will improve this year, and they see empty office space growing.

The National Association of Realtors said Tuesday it sees vacancy rates climbing in 2010 for offices, industrial, and retail.

While the economy is recovering slowly, joblessness remains high.

"Because of the lingering impact from the deep recession over the past two years, vacancy rates will trend higher and many commercial property owners will need to make rent concessions," NAR economist Lawrence Yun said.

The NAR report showed the office vacancy rate at 16.3% in the fourth quarter of 2009. It projects a 17.6% rate at the end of 2010.

Industrial vacancy will increase to 14.9% in fourth quarter 2010 from 13.9% in fourth quarter 2009, the NAR projects. Retail will rise to 12.7% from 12.4%, it predicted.

Improvement will take some time.

"With the job market expected to turn for the better later this year, we'll see rising demand for office and warehouse space, but that isn't likely before 2011," Yun said.

The Federal Reserve's latest senior loan officer survey showed banks reported tightening standards for commercial real estate loans at the end of 2009.

Yun called on the Fed to "more actively help resuscitate commercial mortgage-backed securities."

To increase credit availability, the Fed has already created a tool, the Term Asset-Backed Loan Facility.

U.S. regulators have been warning about problems in the commercial real estate market for months. Federal Deposit Insurance Corp. Chairman Sheila Bair, speaking at a conference in Washington, said regulators expect banks to report higher delinquencies and charge-off rates for commercial real estate properties in the first three months of 2010. Even income-producing properties have seen a decline in credit performance, Bair said.

The Congressional Oversight Panel this month warned that nearly 3,000 small U.S. banks could be forced to sharply curb lending because of commercial real-estate loan losses. Small banks-- threatened by loans they made for shopping centers, offices, hotels and apartments--are a big part of the U.S. credit system. The constraint on credit could hurt an already muted economic recovery.

Source: The Wall Street Journal, February 23, 2010

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