Uncertainty in the financial market has begun slowing down a two-year
rebound in the commercial real estate industry, the Wall Street
Journal reported, with companies that had been looking for large chunks of
office space now delaying their plans. As the article notes, fashion
designer Tommy Hilfiger’s plans to convert the Metropolitan Life clock
tower, a 1909 office building near Manhattan’s Madison Square Park,
into a hotel and luxury condo collapsed this month after Hilfiger
and his investment partner weren’t able to secure enough financing.
Some investors say that the recent turbulence is not more than a bump
in the road before commercial real estate values resume their upward
march toward near-peak levels in areas such as New York and
Washington. Top buildings in major cities still are attractive to many
investors because of ultralow interest rates, prices and rents near
the top in high-end retail.
“We’re still optimistic about the recovery,” said Marc Halle, a
managing director at Prudential Real Estate Investors, a Prudential
Financial unit that is a major commercial property investor.
“Obviously, the events of the past few weeks have slowed the market
[but] not derailed the market.”
But New York City is also facing the challenge of job cuts on Wall
Street. If the slowdown accelerates, some real estate experts are
worried that the amount of vacant space in office buildings, retail
stores and other types of commercial real estate might climb, while
rents drop. As of June 30, the overall vacancy rate for office
space was about 18 percent, basically unchanged from the peak of the
post-real estate boom, according to research firm Reis.
Investors are also concerned that banks could possibly see a jump in
troubled commercial loans, which have been one of the biggest
contributors to the nation’s nearly 400 bank failures since the start
of 2008, Deutsche Bank AG analysts wrote in a report last week.
70 percent of the architecture firms recently contacted by the
American Institute of Architects in its monthly survey reported that
they have at least one stalled project, according to Kermit Baker, the
institute’s chief economist. “The most common reason by a fairly wide
margin is the inability of the developer to obtain financing,” he said. [WSJ]