Office, retail and hotel space are all being affected according to Jeffrey Havsy, global strategist at Property & Portfolio Research.
US commercial real estate has been grappling with tight credit markets and heightened pressure on rental and occupancy rates as job losses mount and the US recession deepens.
So far this year the US economy has shed 1.2 million jobs, with about 40% of them having been office workers.
One of the hardest hit markets is expected to be Manhattan. With 395 million square feet of office space, this market is larger than Chicago, Washington, DC, Boston and San Francisco combined and largely dependent upon the financial industry because it takes up large chunks of very pricey space.
As banks and investment firms have consolidated and laid off workers, they have given up space. The Manhattan office vacancy rate climbed to 7.8% in November from its lowest rate of 5.7% in December 2007, according to Cushman & Wakefield. From January through November, 8.7 million square feet became available for rent in Manhattan. Sublease space accounted for 4.3 million square feet, Cushman & Wakefield said.
The company is forecasting that average Manhattan rents will decline between 10 and 20% by 2010, and between 5% and 15% nationally.
In addition to financial institutions, retailers have had declines in sales as consumers curtailed spending and the prices of food and other essentials rose. More than 6,000 stores have closed year-to-date, and there have been many layoffs from stores and restaurants.
PPR expects retail rents to be down 1% this year and 3.3% in 2009. Because the values of buildings depend upon the rent they can generate, commercial real estate prices are expected to tumble.
PPR said overall US real estate prices could fall about 20% from their peak in 2007 if the recession does not worsen. While JPMorgan is forecasting a decline of 25 to 30%, depending upon the quality and location of individual properties.
