Commercial Doom and Gloom- By: Melissa Chappell
Commercial real estate has been hard hit during the current property downfall, alongside the residential sector. The general outlook appears similar in various commercial markets around the world, with ever increasing supply exceeding demand.
The lack of demand has caused an excessive slump affecting developers, contractors and also investors. The rising unemployment levels combined with the general economic downturn has lead economists into a frenzy of predictions for the future of the market.
With the condition of the real estate market being a focus for general all round bad news in various worldwide markets, finally the moment has been reached when economists originally predicted they would be able to gauge the severity of the market. From this position they claim to be in an improved position to advise on the sector’s immediate future.
Technically it should only be a matter of months before the general public is informed whether the commercial sector will continue with a bleak outlook, or if it will start to regain some positivity. With the state of the residential market acting as a gauge for the outlook of the commercial sector, the first half of 2009 produced positive results in comparison to the past two years of downfalls. From these findings, the overall real estate market could finally be looking up.
Unfortunately despite the positive outlook of the residential sector and the connections it presents for the commercial market, things aren’t going to spring back to normal over night. In the USA commercial property sales dropped by over 70% in 2008, a dramatic fall in the market that is expected to take years to rectify.
One of the main issues the commercial property sector has faced is the default payment of financing. Many of the financing institutes with a high percentage of business relating to commercial property loans have faced closure. Due to the large percentage of debt and default payments on commercial property, many banks are now reluctant to offer financing, or to review clients for re-financing options.
The sheer size of debt relating to commercial loans provides some insight to the level of trouble the market has entered. In the USA, over $3 trillion of commercial real estate is financed, with the drastic reduction in demand, economies in recession and rising unemployment rates, the commercial real estate sector has some huge hurdles to overcome.
Some of the biggest names in the world’s commercial sector have been affected by the economic downturn, scaling back on expansion plans and even closing down some stores, showrooms and factories. The motoring industry provides a good example of the dramatic reductions in the commercial sector in the recent economic situation.
With predictions being thrown around in every direction from all varieties of economists, researchers, analysts and professionals, it seems apparent that the commercial real estate sector will take some time to recover. With residential real estate finally producing a glimmer of positive growth in the deepest effected markets, hope that the bottom has finally been reached and the overall real estate sector is starting to regain its former health, may be in sight.
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