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Commercial Vacancies, the Next Real Estate Bubble to Burst

Reblogger
Real Estate Agent with The Delta Group brokered by eXp Realty OR Lic#200406064

Original content by Ki Gray
News headlines throughout major U.S. cities note record-high commercial vacancies, along with a decrease in the asking price for commercial rental space. As was predicted by several major real estate statisticians earlier this year, the next real estate bubble to burst is commercial properties.

Based on statistics compiled by Cushman & Wakefield (C&W), the commercial vacancy rate hasn't been this high since mid-2005. C&W, a global commercial real estate brokerage and consulting firm, found that vacancy rates increased in 24 of the 32 major markets they surveyed.

Colliers International, a global commercial real estate service provider, noted that rental office space is becoming abundantly available. Nationally, office space vacancies in major business districts jumped from 12.5 to 13.74 percent in the second quarter of 2009. Suburban markets increased 1.95 percent to 16.28 percent. In addition, the firm found that the asking rent in major districts dropped by 3.2 percent during the quarter to an average of $38.25 per square foot. Average asking rent in U.S. cities overall, however, are now more often priced at around $25.00 per square foot.

Both firms note that the market has been pummeled by increased supply and a decline in demand due to the economic downturn. Executive Managing Director Maria Sicola asserted that elevated unemployment numbers translate into the reduced demand reflected in higher vacancy rates. More than 66% of 6.5 million square feet of newly constructed commercial space was still vacant at the end of the second quarter of 2009.

Michael Cohen, a research strategist for Property & Portfolio Research (PPR), stated that the firm's expectation was that vacancies would reach historic highs in office, apartment and warehouse space in 2009. According to ING Clarion Real Estate Managing Director David Lynn, the hospitality market has been dealt the biggest blow with major cutbacks in business and leisure travel.

Most cities across the nation are experiencing a rise in commercial vacancies. Phoenix has a 17.4 percent vacancy, Chicago's is at 15.4 percent, Washington, D.C. holds an 11.7 percent rate, Las Vegas exceeds 20 percent, Kansas City is higher than 18 percent, Providence, Rhode Island is now over 30 percent, and so on.

Along with the rise in commercial vacancies, insurance companies are becoming more concerned about liability associated with vacant real estate. Vacancies present additional risks not applicable to occupied real estate. Commercial insurance companies are encouraging owners of vacant real estate to minimize risk by implementing the following:

* Notify insurance company of vacancy, become informed and follow policy terms that apply to vacant property.
* Advise local authorities that property is vacant.
* Remove all combustibles, debris and any unnecessary materials from vacant property.
* Inform local fire department of materials left that could impair fire-fighting.
* Inspect property weekly, have someone watch the property or hire a guard service to daily drive by to observe property.

With real estate vacancy numbers not anticipated to see daylight for some time to come, this is wise advice, indeed.

Ki moved to Austin to attend college, and stayed to work in Austin real estate. He created a website encouraging buyers to search for Austin homes for sale. His site also has information on Austin Commercial real estate and general information and statistics on Austin real estate.

Comments (2)

Barbara Birinyi
Quitman, TX
TX Real Estate Broker - Horse Property Specialist

Scott, Unfortunately, I agree with the title.  This one is a no-brainer. 

I have a substantial position in commercial property REITs (retail, office, manufacturing, medical in the mid-west and south) and so follow the markets.  Values plunged lower during the crash and haven't recovered as much as the general market.  Vacancies are climbing.  There's no place to go to get the capital needed to hang on until better times. 

Can't imagine what kind of government incentives will help cure this ill. 

Feb 02, 2010 05:08 PM
Coldwell Banker Cutting Edge
Coldwell Banker Cutting Edge - Grants Pass, OR
"Your Proactive, Trusted Real Estate Advisor"

Man you are an impressive blogger and can even type or was it Matt?  =)

Feb 02, 2010 10:42 PM