Experts: Now's the time to buy commercial property
The current recession is déjà vu for many veterans of the real estate game who remember the early 1990s. With construction at a virtual standstill and vacancy rates on the rise, the future of that sector seems to be in big trouble.
However, reports of commercial real estate's demise have been greatly exaggerated, according to two experts who provided insight and forecasts at a forum this morning in Portland.
Speaking at "Where Do We Go From Here?," a market forecast breakfast presented by CBRE/The Boulos Co. and Perkins Thompson law firm, Jon Southard, principal of CBRE Econometric Advisers, and Tony McDonald, a partner with Boulos, agreed that while the market hasn't yet hit bottom, all signs point to that bottom arriving in 2010.
In his keynote address, Southard said that once the market stabilizes, the length of time the market takes to turn around depends on a number of factors, including value changes and income. Buyers' and lenders' willingness to wade back into commercial real estate is going to be the X-factor that determines that timeframe.
"Real estate is a sector that moves slowly ... If you wait for rent growth to hit bottom, values may already be on the rise," he said. "It all comes down to whether there will be enough confidence that people will jump in and invest in commercial real estate. All the market is missing right now is that liquidity."
During his address, Southard seemed to surprise those in attendance with a bold prediction.
"We are going to see the official end of the recession in this quarter," he said, adding that this would be a driving factor for the impending commercial real estate turnaround.
From a local perspective, the Portland market has remained a safe bet through one of the worst recessions in history, according to McDonald, who said the area hasn't been hit nearly as hard as some of the larger markets in the country. Vacancy rates in and around Portland are less than half of those in New York and Boston, and the range between highs and lows in those rates is much narrower, as well.
"We just don't have those up and down spikes, so from an investor perspective, it's a relatively stable market," McDonald said. "It may not be a home run market, but they don't get crushed like they did in the '90s."
While the current recession bears many similarities to the early 1990s, a number of differences have made it more palatable for the commercial real estate market. Chief among these differences, McDonald said, is that banks aren't as interested in adding to their real estate portfolios this time around.
"Banks don't want properties, so they're engaging in 'pretend and extend' and 'survive for five' practices," McDonald said. "They pretend there isn't a problem and negotiate a new deal to let the borrower survive for five years."
With low interest rates, stabilizing jobless numbers, a dollar that is attractive for exporting and an improving economy that coincides with a low point in the commercial real estate market, Southard and McDonald said there will be tremendous opportunities in 2010 for those who either have the capital or have access to capital to put into the market.
"This is a great time to buy, even without a 'fire sale' mentality," McDonald said. "You make your money when you buy, and over the next 12 months, it's going to be a great time to buy."
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