Sunday, September 27, 2009

Commercial Real Estate Lagging


Article by : Srividya Srinivasan

The real estate market is suffering even though there are signs that the economy is improving. General Electric’s real estate company made 1.1 billion dollars on commercial property during the first year of the recession. But as far as five years from now, it is estimated that GE will no longer receive any money. So why are losses in commercial property affecting GE now, when the market is stabilizing? Credit tightening, falling prices, and excess spaces will continue long after the recession ends.


As building leases are up for contract renewals, GE is forced to lower the prices other companies are competing to fill vacant spaces due to the recession. However, they will not be able to raise prices again until the contracts end and are stuck with these low rate leases on office spaces that are signed for 5 to 10 years; after the recession GE is affect by being forced to live with low rates despite the fact that market rents are increasing.


Commercial real estate is often the last think to bounce back. With an improving real estate market like Canada, we can see the commercial market still lags behind. Industry reports show that the housing market in Canada had its fourth-strongest sales figure in the second quarter as buyers take advantage of the low interest rates currently. However, the commercial real estate, in the meantime, had a 50 percent decline during the beginning of the year.


Sources:

1. Real Estate Drag on GE

2. Can Commercial Real Estate Sink the US Economy?

3. Getting Personal Canada: Real Estate Lagging


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