Faced with a Curve Ball
The commercial sector deals with a slowdown.
The residential market is obviously suffering, but several indexes show trouble ahead for the commercial market. PricewaterhouseCoopers’ recently released Korpacz Real Estate Investor Survey (KREIS) indicates a slowdown in the commercial sector that could last through mid-year, if not longer.
“With consumers retrenching and curtailing their spending habits, the retail sector could feel the most ramifi cations going forward,” says Susan Smith, a manager in PricewaterhouseCoopers’ real estate business advisory services group. “At a time when there is a lot of retail space under development, many retailers are reducing their expansion plans. That will leave many retail centers with empty spaces.”
Office markets in some areas of the country are struggling as well. KREIS reported sharp declines in overall office space absorption in the fourth quarter of 2007 as compared with a year earlier in Chicago, midtown and downtown Manhattan, Houston, and Washington, D.C.
With a slowdown looming, owners should sit tight if possible. “If they need to sell in the near future, they should do it as quickly as possible and market [the property] aggressively, including a small cut in price,” counsels Brian Farmer, president of advisory services for Coldwell Banker Commercial Trademark Properties in Raleigh, N.C. “[But] if they can hold a property through this small cycle, we, of course, recommend that.”
Smith of PricewaterhouseCoopers urges careful planning. “It’s a good time for developers to reassess their plans and scrutinize where they want to build next in anticipation of the next upturn,” she says. “The commercial real estate industry remains quite healthy because developers have been disciplined—and they need to stay that way.”
