Interesting post from Jon Talton in his Sound Economy blog. He pegs his story on Amazon's decision to close three distribution warehouses but what is really revealing is the looming problems in commercial real estate.
But now the delinquency rate on securitized loans for office buildings, retail developments, stores and other investment property has more than doubled since last September, to 1.8 percent. We're talking about $700 billion... There's concern that hundreds of banks with heavy exposure to commercial real estate could fail.
While the Northwest largely escaped some of the more devastating declines in 2008, we are seeing vacancy rates increase in areas like downtown Seattle that binged on commercial development in the run up to this economic decline.
Are we in line for wave of commercial real estate defaults that fuels further economic decline? Let's hope not.
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11 comments:
i wonder if b/c our region lagged in the commercial real estate decline we'll see a shorter timeframe of vacancies with investments starting to pick up? crossing my fingers as that will indicate general economic turnaround too!
It seems there's great potential for another start-up boom here in Seattle, and all those cool, cubicle-free, pinball machine toting start-up businesses will need a place to work. That's the first optimistic thing i've said all week.
I kind of agree with Emil here. Leasing rates are dropping (or at least terms are more flexible), which may motivate small businesses to lock in these contracts now while the economy is on their side. Most start-ups don't profit in the first year, so starting the business during a "recession" can be smart. You P&O sheets may nose dive this year, but watch out 2010 and beyond!
I known several start-ups that have turned to residential properties instead of commercial properties due to the declining economy. Not something I’d want to do, but some are even splitting home/office – that makes for a rough time balancing work/life balance. They are looking at the long term investment - owning not renting.
Agree with Emil that it's a great time for start-ups to snag the cool downtown space that has been virtually unatainable for years. Hopefully, more boutique-type shops and decent restaurants will follow in order to revive downtown a bit.
I don't think its a matter of big companies leaving town, maybe changing their name, but not heading to another city. There are statistics out there that say Seattle has more college grads per capita than most other cities. Because of the talent we have here the job market has been strong which I think is why we didn't see the type of decline in residential real estate that most cities saw. I think Seattle will continue to stay well positioned in this economy and as others have mentioned foster new business growth.
You'll also have to wonder that with all of the vacant commercial space if owners will start to rent for other purposes such as storage or 'pop up stores'(temporary retail manifestations) which is something that is happening in NYC now. More on pop up stores: http://www.psfk.com/2009/01/site-visit-gappantone-nyc-popup-store.html
My roommate works for an architecture firm that does both commercial and private spaces. She said that with the economy, people are building less (pretty obvious, right?) What's weird is that almost everywhere I turn downtown, there's construction on buildings taking place, despite increasing vacancy rates. Am I missing something here?
With all the open commercial real estate today, there is no excuse for killing green space for any kind of development, unless its a park!
I have noticed a lot of commercial development slowing. Project that were supposed to be done by now that are having trouble with funding. That said, I agree with the general feeling that Seattle should see less impact. Maybe that is just wishful thinking.
Interesting article today in Seattle Times on the broader impact of empty commercial space: http://seattletimes.nwsource.com/html/localnews/2008946253_wamufallout30m.html.
Not just a loss for commerical lenders and leasers, but also a loss for all of the small industries close to that office space that people support(ed).
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