Credit Crunch, Economy Hurt Commercial Real Estate

The economic downturn, complicated by a severe credit crunch, is dampening commercial real estate activity, NAR says. In addition, a forward-looking index indicates commercial real estate sectors will remain weak for the remainder of the year. "Significant job losses have reduced the demand for commercial space, while a lack of credit has stalled transactions and refinancing activity," says Lawrence Yun, NAR chief economist. "It is critical for the Federal Reserve to increase liquidity by purchasing commercial mortgage-backed securities. Because commercial real estate always lags an overall economic recovery, it will take some time for the commercial real estate market to rebound." The Commercial Leading Indicator for Brokerage Activity fell 4.8 percent to an index of 103.5 in the first quarter from a downwardly revised reading of 108.7 in the fourth quarter, and is 12.9 percent below the 118.8 recorded in the first quarter of 2008. The weakening index means commercial real estate activity, as measured by net absorption and the completion of new commercial buildings, can be expected to decline over the next six to nine months.