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Market Data
Q4 2009 Commercial Real Estate Market Outlook
Radius Commercial sources CoStar, a national provider of commercial market data for both office and industrial sectors, and other national, regional and local industry participants such as lenders, general contractors, architectural firms, attorneys and firm clients to help understand today's commercial marketplace.
Overall, the national and local economies continue to shed primary jobs. At the national level, through fourth quarter 2009, there are fewer workers employed in the U.S. than in 2000. The 10.0% national unemployment rate has not risen to this level since midyear 1982 (10.8%). Nationally, the office market has shed well over 3 million jobs resulting in increased office vacancy rates and declining office rents and property values as landlords strive to retain existing tenants and attract new tenants. In the near term, concessions will abound in the form of lower lease rates, free rent and parking as well as discretionary tenant improvement allowances as landlords attempt to maintain pro-forma face rents.
Users are in a unique environment to acquire operational assets in a less competitive environment with institutional investors, who drove capitalization rates into the 5% range in 2006-2008. Users should be prepared to pay cash or finance with lower loan to value debt. Their upside may be reduced longer term occupancy costs with the possibility to finance out as the credit markets return to more normal lending conditions.
The banking sector has been challenged to provide adequate financing for commercial real estate transactions resulting in very low sales activity. Meanwhile, a variety of capital sources are on the sidelines waiting for the market bottom. With the pending difficulty of landlords to refinance or recapitalize commercial assets, the specter of foreclosures and workouts of existing loans will begin later this year and into 2010.CMBS and conventional bank debt will take time to unwind, and borrowers will be subject to more stringent underwriting on future transactions.
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