Is The Recession Impacting On The Commercial Property Market?


The commercial property market thrives in a stable economy. The recession is a setback that has caused inflation in the prices of many things as owners try to mitigate their losses. However the property market is unique. While the prices go up, commercial space prices go down for a short period. However this move does not stagger the commercial rental and selling prices. Property managers are usually out trying to make some money and safeguard their investments. The most significant change is a drop in the number of tenants and a drop in the number of people purchasing houses. The latter can drop even by 90% since the recession weakens the spending capacity of most investors while those who are eying properties start speculating and wait to see if prices will come down. The recession is impacting on the commercial property market creating gainers and losers.

Gainers

While there are many negatives coming along due to the ripple effects of the recession, there are some practitioners in the commercial property market who are gaining. Top on this list are landlords. Some of the major corporations have smart risk analysts who speculate market trends and advise on proper measures that corporations should take. Such corporations pay their landlords for a long period of time to reduce the expenses when the recession strikes. The landlords of these corporations are paid rent either in quarterly intervals, half year intervals or annual intervals. Strong corporations may prepay their rents for 5 years at a go.

Other gainers are people who had purchased property when the prices were lower and when the market was stable. These are the people that are becoming tenants to people who are moving from foreclosed homes. Depending on the cost of acquisition of their property, these property owners decide how much they want to sell their property to desperate and willing buyers who have the spending capacity and do not want to be caught up paying rent when the recession is at its peak.

Foreclosure Realtors

With the foreclosures increasing by over 100%, realtors dealing in foreclosed homes are thriving in the tough financial conditions as they buy these foreclosed homes, recondition them and sell them at cheaper prices to investors with the ability to purchase these homes.

Losers

Mortgages and Credit

Credit institutions have become more rigid in offering mortgages while the mortgage interest rates have risen. This has discouraged many real estate investors. The increasing number of foreclosures has sent people looking for rental space instead of owning their own spaces. The mortgage firms have reduced their lending budgets relatively to provide for the losses that they incur in foreclosures. This reduction of exposure has dealt the commercial property sector a major blow since a disruption in the trend of the sector renders the market almost dormant. Only the market savvy investors that make up 10% of the buyers are taking up the risk of transacting in the commercial property sector during the recession.

With a reduction in employment, confidence and consumer spending, the commercial property market will have to conduct a sizable downsizing process. With a smaller risk margin, the property firms will still be realizing reasonable profits as they wait for the market to get back to normal.