RE and economic charts: Office Vacancy, Lease Rates and New Investment

Saturday, July 24, 2010

Office Vacancy, Lease Rates and New Investment

[mEDITate-OR:

know that what we know about "commercial RE" is unknown...

However, these two CR charts tell U.S. a very interesting story.

We must remember that since commercial RE takes much longer to begin, do, and sell out than residential RE that the numbers we are shown are always very volatile.

Knowing that, see where we, as compared to them, are.

Now, note this:

First, in the 1st chart vacancy rates prior to 08 "tracked" with new construction - from 88 to 97 construction stopped until vacancies fell enough to star up again from 98 to 01 so that vacancies were created with the new space created. Drop of both from 01 to 05 and climb from 05 to 07.

Butt, of the joke, in 08-9-10 construction collapsed but vacancies climbed. Vacancies were supposed to drop, butt, of the joke, they did not.

Second, almost ALL commercial properties have/are 5yr balloons. What that means is that at the end of the 5yr loan, it must be rolled over, re-fied, OR foreclosed.

Now, LOOK at the 2nd chart.

When the 5yr balloon for the 04 Cmcl RE loans came due in 09, the current 09 lease rate was still higher than when the original 04 contracts were signed.

BUT, and this is a BIG but, note what happens when the 05 cmcl RE loans come due in 10, the current lease rates are BELOW the original rates...!!!

AND, then LOOK at the differences when the 06 mortgages come due in 11, and MOG when 07 mortgages arrive on our doorsteps in 12...!!!

If you thought it WAS ugly..., you ain't seen nothing yet.

---------