Commercial Vacancies, the Next Real Estate Bubble to Burst

By
Real Estate Agent
News headlines throughout major U.S. cities note record-high commercial vacancies, along with a decrease in the asking price for commercial rental space. As was predicted by several major real estate statisticians earlier this year, the next real estate bubble to burst is commercial properties.

Based on statistics compiled by Cushman & Wakefield (C&W), the commercial vacancy rate hasn't been this high since mid-2005. C&W, a global commercial real estate brokerage and consulting firm, found that vacancy rates increased in 24 of the 32 major markets they surveyed.

Colliers International, a global commercial real estate service provider, noted that rental office space is becoming abundantly available. Nationally, office space vacancies in major business districts jumped from 12.5 to 13.74 percent in the second quarter of 2009. Suburban markets increased 1.95 percent to 16.28 percent. In addition, the firm found that the asking rent in major districts dropped by 3.2 percent during the quarter to an average of $38.25 per square foot. Average asking rent in U.S. cities overall, however, are now more often priced at around $25.00 per square foot.

Both firms note that the market has been pummeled by increased supply and a decline in demand due to the economic downturn. Executive Managing Director Maria Sicola asserted that elevated unemployment numbers translate into the reduced demand reflected in higher vacancy rates. More than 66% of 6.5 million square feet of newly constructed commercial space was still vacant at the end of the second quarter of 2009.

Michael Cohen, a research strategist for Property & Portfolio Research (PPR), stated that the firm's expectation was that vacancies would reach historic highs in office, apartment and warehouse space in 2009. According to ING Clarion Real Estate Managing Director David Lynn, the hospitality market has been dealt the biggest blow with major cutbacks in business and leisure travel.

Most cities across the nation are experiencing a rise in commercial vacancies. Phoenix has a 17.4 percent vacancy, Chicago's is at 15.4 percent, Washington, D.C. holds an 11.7 percent rate, Las Vegas exceeds 20 percent, Kansas City is higher than 18 percent, Providence, Rhode Island is now over 30 percent, and so on.

Along with the rise in commercial vacancies, insurance companies are becoming more concerned about liability associated with vacant real estate. Vacancies present additional risks not applicable to occupied real estate. Commercial insurance companies are encouraging owners of vacant real estate to minimize risk by implementing the following:

* Notify insurance company of vacancy, become informed and follow policy terms that apply to vacant property.
* Advise local authorities that property is vacant.
* Remove all combustibles, debris and any unnecessary materials from vacant property.
* Inform local fire department of materials left that could impair fire-fighting.
* Inspect property weekly, have someone watch the property or hire a guard service to daily drive by to observe property.

With real estate vacancy numbers not anticipated to see daylight for some time to come, this is wise advice, indeed.

Ki moved to Austin to attend college, and stayed to work in Austin real estate. He created a website encouraging buyers to search for Austin homes for sale. His site also has information on Austin Commercial real estate and general information and statistics on Austin real estate.
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Comments 15 New Comment

Rainer
71,363
The Ross Team Fort Collins Real Estate
CDPE
Prudential Rocky Mountain REALTORS

Very excellent information.  I do not think we have seen the worst yet in commercial :-(

August 24, 2009 02:16 PM
Rainmaker
664,326
Will Nesbitt
Nesbitt Realty is a family-run brokerage.
Nesbitt Realty at Condo Alexandria

This is a little scary to be honest.

September 01, 2009 10:57 AM
Anonymous #13
Anonymous
Anonymous

Where are the 'green' buildings and 'green' rentals in all of this?

Are they renting or selling faster than the existing 'nongreen'?

In the last year I have run into three firms striving to 'green' existing commercial properties as the talk is that there alot more to do (money to be made) on existing properties than there are new ones coming on board.

Any thoughts on how this will turn the Commercial real estate market around in the next few years?

 

October 15, 2009 02:36 PM
Rainmaker
229,509
David Jirasek
ALC, CCIM
Jirasek Realty

Our commercial market saw an increase in vacancies last year, including space at the new shopping centers, some bigbox, and a little restaurant space. Rental rates a little soft. Industrial is mostly owner occupied so a bit more stable. Our area is not seeing any short sales. Local banks still lending with good credit and down payment, but not on start up restaurants. Little to no "green" activity or interest.

January 10, 2010 07:47 AM
Rainer
6,474
Carla Williams

I'm a Realtor and working on a commercial lease and have been trying to find out the leased rates for other commercial properties in the same area. Where is this info avail?

August 20, 2010 03:03 PM
Rainmaker
174,490

Ki Gray

Austin Real Estate
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