CRE to Continue to Be Hobbled by Economic Doldrums

As the world economy continues to slump, commercial real estate assets are likely to see rents fall and vacancies rise throughout 2009, according to a new report issued by NAI Global. At a conference on Thursday morning to discuss the report, Jeffrey Finn, NAI Global’s president & CEO, said vacancy across all product types worldwide could increase by 150 to 200 basis points as the year progresses, with rental rates falling in the 10 to 20 percent range. “It will be late 2009 to 2010 before we are going to see the beginning of a resurgence,” Finn said. In a forecast and analysis of the U.S. economy, Dr. Peter Linneman, NAI Global’s chief economist, said that while economists now peg the beginning of the U.S. recession in December of 2007, the economy took a major turn for the worse in September 2008, and more specifically, dating to the collapse of Lehman Brothers. The continuing stream of apocalyptic news from that point, and the starts and stops in spending the Troubled Assets Relief Program funds, or TARP, caused the economy to weaken even further than it normally would have, he said. However, having a new U.S. administration in place may ease the confusion and panic seen in the latter part of 2008, as Linneman said an economy needs a firm set of rules and regulation to function efficiently, and bailouts given selectively to banks, investment banks and auto companies eroded both corporate and consumer confidence. Some good news was lost during the banking and financial implosion, Linneman said, as oil prices, which had risen by $100 a barrel over the previous 14 months, began a rapid descent. While lower oil prices should help hasten the global economic recovery, the benefits of lower fuel costs take time to work their way through the economy, he said. Looking ahead, the American economy is likely to further contract in the first quarter, with  flat growth in the second quarter, and positive growth returning in the third quarter, Linneman said, although those growth figures should not be over-valued, since it is being compared to some dismal quarters. Job growth should return to the U.S. a quarter of two after positive GDP growth returns, with commercial real estate vacancies and rental rates then starting to firm.