How the Recession is Affecting the Commercial Property Market
It is the prices of the commercial properties that have suffered much more than the prices of residential properties during the recession. This is due to the crisis in the financial sector that has led to this rapid descent into the recession of the economy and reinforced this downward momentum in the real estate market.
The media has been focused on this collapse of prices and the decrease in the volume of transactions in residential properties but it is the commercial properties that are in a perilous state. Activity across all the areas of commercial properties is in a decline. Besides, this deepening recession has only accentuated this downward spiral.
This is why commercial property owners are now offering increased incentives in order to secure lettings. This decline in the commercial properties market has adversely affected all those who are looking towards letting property space.
Indeed, this market will take much longer than the other sectors in order to recover from this recent economic recession conditions. Actually, it was a bit late in going into the recession but will take much longer in coming out of it. This is because the nature of this business sector is such that it feels the after-effects of this economic recession.
It is widely believed that not all the commercial property companies that are now in difficulty will end up as being insolvent. On the other hand, a few will self-heal, but there will be many more that will not. In fact, commercial property is going to remain a blight on the banks for a long time.
Since the commercial properties market is in such a bad state, hence drastic actions are to be taken, or else its effects on the economy are going to be catastrophic. The main problem is the amount of excessive debt that has been placed on the commercial properties and this amount of debt needs to be paid up quite soon.
It is due to the virtual absence of any secondary market; besides banks being weakened that has made the situation dreary. In addition, with so much debt being already held by the insurance companies as well as the pension funds, not even half of this outstanding debt will get refinanced. All this has been compounded by the apparent collapse of the rental market of commercial properties.
There is one financial crisis following another. Also, the foreign investors are now sitting back and waiting to see when the prices will practically collapse. Also, this problem has been exacerbated by the deeper effects of the recession, which include an absence of credit besides growing job losses due to falling prices.
In addition, there are the issues of consumer demand as well as credit, besides the insolvency of many institutions leading to a confidence loss in the economy. All this happening in the real estate has led to repercussions being felt in the market and has made the lending community quite paranoid and leading to restricting credit even if it is available.