Looming recession hurts commercial property market in US
Fears of a recession loom over the US economy, and now, economic analysts are forecasting a decline in commercial property valuation and demand.
Investors may turn to overseas markets to overcome the difficult economic scenario is the US, some believe.
The fear for investors is that commercial property will take the same path as residential housing has taken over the last 18 months. The decline has caused record rates of foreclosure in the housing market in the US during the last 12 months. Investors, fearful that commercial property will face the same fate, worry that this decline will leave unpaid debt that is difficult to remove.
Additionally, with the problematic housing market come difficulties with the ability of investors to secure loans due to tightening requirements put in place by strapped lenders. This has forced many commercial property owners to reduce the pricings on such property being sold.
At the same time, Moody's Investors Service says in a report dated 3 January that additional problems will slow commercial property sales. Included in this is the slower job growth in the US as well as the poor corporate profits. Hardest hit in this field will be suburban offices as well as full service hotels. The full service hotels are particularly at risk due to the lessened amount of business travel, which has sustained such hotels for some time.
On a good note, those office spaces under longer term leases will overcome these weakened forecasts by simply riding the storm. Additionally, smaller scale, limited service hotels will not be as affected because the demand growth for them is much stronger.
Finally, according to the same Moody's report, the strongest property type of the quarter will be the multifamily sector. The neighbourhood and community property sectors remain steady for the most part. Additionally, construction remains steady, according to the Moody's report.