by Rebecca Walker — January 14, 2009—Contractors, investors and developers are bracing for what could be the worst real estate crunch since the early 1990s, when the industry built a small city’s worth of speculative office buildings that later went begging for tenants, according to a story in USA Today.
Commercial property sales plunged 73% last year, according to Real Capital Analytics. Vacancy rates are rising, and hundreds of large properties are in default.
The American Institute of Architects’ billing index, a leading indicator of construction six months ahead, is at a record low. Unemployment in the construction industry is 15.3%, well above the average 7.2% jobless rate.
“This is a rolling problem that’s only going to get worse,” says Jeffrey DeBoer, president of the Real Estate Roundtable, estimating that about $400 billion worth of commercial real estate mortgages will come due by the end of 2009. Investors and developers might have trouble refinancing many loans, due to tight credit and falling rents and property values.
Robert Murray, vice president for economic affairs at McGraw-Hill, says the downturn will get worse in the coming year but may not end up being as dramatic as the 1980s and 1990s real estate implosion. The outlook depends on what happens to the overall economy.
Office space construction will plunge in 2009 by 26% though Murray cautions that the office market is becoming increasingly vulnerable as unemployment rises. The hotel industry will move from a 3% dip in 2008, to a 30% drop in 2009.
