Who knew that the same problems that have plagued the residential real estate market exist in the world of commercial real estate? This week, The Real Story is talking to Randy Getz, Executive Vice President of CB Richard Elllis in Sacramento. According to Randy, the commercial real estate market is also in the process of restructuring—a process that won’t be completed any time soon.
One of the big surprises in talking with Randy is the way he correlates the rise and fall of residential real estate to the commercial sector. In Sacramento, he says, no single segment of the economy stands alone. The frenzied building activity of the last couple of years and the ensuing run up of housing prices also increased market need for development in the industrial real estate field—up to 25% of the industrial market was tied to residential—and as residential activity fell and remained below normal levels, so fell the industrial sector.
Commercial real estate developers have the same limited access to credit that beleaguers their residential counterparts. Add to that the fact that lending on commercial buildings is considered more risky now, because of the number of tenants who close their doors or need to renegotiate their leases. An easy bank loan on a pre-leased building? A thing of the past. In addition, Randy says that the transactional volume has dropped year over year for the first six months of 2008 and 2009 by 70 – 80%.
With so many Californians in the residential market, the news has focused on the hits that individuals and families have taken. The slowdown of the commercial market has been largely ignored—yet is this going to feel like yet another shoe dropping when it comes to talk of a recovery in 2010?