More empty space is expected this year as more jobs are lost and businesses become unstable. Rental income and property values decline. In fact, 2009 is predicted to be the worst year of the commercial real estate market.
Building owners face a problem that is something similar to foreclosures. This year they have to refinance commercial mortgages. But this is hard since banks and credit markets are not confident in lending.
With the current state of the commercial real estate market, groups lobby for government assistance and warn about the impact of defaults in the financial market.
Big threats are faced by banks now. Before, commercial property loans have been turned into securities but now, since there are fewer investors, there is no market for those securities anymore, which really trouble borrowers.
Now that new office towers are about to be completed, demand for it has dried up. The economic recession is rampant and it is expected to increase vacancy rates by 2 to 5 points by mid-2009. A lot of companies shed space and big banks shrink due to several mergers.
Effective rents and other landlord concessions have fallen, which makes it hard for building owners because they pay interest loans of 5-10 years and refinance the big payments when loans come due; so without new financing, they have few options other than negotiating with or handing over the keys to the banks and bondholders. This is something similar to homeowners in foreclosure.
A lot of properties are in trouble, particularly office towers, shopping centers and hotels. A group has even pleaded the government officials that the commercial real estate be included in a new $200 billion program, intended to encourage lending.
Hopefully, the commercial real estate will be able to withstand economic recession. This issue deserves as much government action it gives to rising foreclosures.
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