Even as some sectors of the US economy see a return to growth, woes in commercial real estate are deepening, raising fears that the fragile recovery could falter.
Unlike the US home market, which has shown signs of rebounding, recovery is elusive in commercial real estate, a sector which includes apartments, offices and industrial and retail properties.
The Moody's commercial property index fell 3.0 percent in October, and remains 32.8 percent down from a year earlier and 40.3 percent lower than two years ago. "Although prices have declined steadily over the past year, the rate of decline has slowed in recent months after falling by about 8.0 percent in both April and May," Moody's said.
According to the Mortgage Bankers Association, loans for commercial and multifamily property activity fell 54 percent in the third quarter from a year ago. Loan originations were off 12 percent from the second quarter.
San Francisco Federal Reserve president Janet Yellen said the prospects for the industry are "worrisome."
"Commercial property didn't turn down until well after housing did," she said. "The sector's problems appear to stem in large part from the effects of the recession and the credit crunch, rather than the type of building boom and lax underwriting standards that tripped up housing."
The market for commercial mortgage-backed securities, Yellen said, "remains deeply distressed and issuance is meager despite support from the Fed."
A survey by the consultancy PricewaterhouseCoopers and the Urban Land Institute suggests the market may continue to slide into 2010. The survey respondents predict that commercial real estate vacancies will continue to increase and rents will decrease across all property sectors before the market hits bottom in 2010.
It projects value declines of 40 percent to 50 percent off 2007 market peaks, setting up the potential for big bargains.
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