It seems here in the metro Atlanta region there is not a day or week that goes by that I hear worse and worse news related to the residential real estate market in our area. So far, and thankfully, commercial has not fallen by the wayside along with it. But- one must really wonder when that is going to change. It seems only a matter of time before commercial is going to start going in the tank if residential doesn't start to pick up. All those mom and pops running the stores in the neighborhood centers are going to not be able to keep performing as their homes get foreclosed, cars repossessed, country in a recession, etc. If i was a squirrel you'd see me hording every little nut and morsle of food I could stockpile. I don't see residential really starting to turn around until sometime next year at best and you really must wonder how long the commercial market can withstand that storm. Granted, all the resi brokers I know are telling me their activity is finally going up with more pendings and more traffic but you always see that in the springtime so that may just be this springs meager attempt at a rush. I don't think we'll know until summer if it's really turning back around but I suspect not considering the massive increase in foreclosures hitting the market each month here locally.

What say ye?

I agree!

National clients such as Kroger,Target,Publix are still doing deals btu they are being more selective. For the developers the projects are more risky as they make the cream selling the outparcels and leasing up the shops surrounding the anchor.

I think one of the hardest hit areas is office space. Medical office is doing very well because healthcare is in big demand with the boomers retiring in droves. Regular office space is taking a dive because alot of new office rental is based on new business starts and most of those occur in a good economy. Right now everything is retracting so new business is down for offices.
Glad I don't focus on that sector.

I think commercial will whether the storm though and new projects started now wouldn't be graded,site prepped,built on and leased up until 2009 at the earliest anyways. Most developers are counting on the economy to rebound when there projects hit the market.

I don't know if I agree with the concensus here. You have to look at WHY the resi market is failing. Too many people bought houses in 1999 for $100,000 and couldn't afford the payment, so they refinanced for $120,000, got caught up, and couldn't afford the higher payment, so they refi'd for $150,000 and so on....until their home was financed at $300K and then the market turned- and the home is only worth $250K now. In addition to this, too many people got into the market at the top in 2005 when the home was worth $300K and they couldn't really afford the payments but had wishful thinking. In addition to all this, it was a team sport, and the banks lent out the money to unqualified buyers.

And why did the prices go through the roof in residential? Speculation. So many home owners view their house as an investment and this is just not true. But they saw prices going up, and thought it was a sure thing. It wasn't investing, it was speculation.

Commercial buyers, generally, do more due diligence on a property, consider the numbers, and buy at a price that makes some kind of sense to them- not just what the over-hyped market is dictating. This is the reason that commercial prices didn't see a big spike 4 years ago like residential, and it's the reason that the adjustment we will see is much smaller than the adjustment the resi market is going through. There's simply less speculation and less adjustment needed.

In short- in the commercial world, if a deal makes sense, a deal makes sense. It doesn't matter if the market's going wild or going south- the deal is assessed on its own basis.

Further, I think that everyone is waiting for the bottom- which is bad investment strategy. It's difficult to buy at the bottom of any market reliably. Prices are good now, sellers are becoming more reasonable, and the window of opportunity is going to be a lot shorter for many people than they think. There will be a lot of people looking back when the market finally turns saying, I shoulda bought then.

I agree things are getting tight, and some people will be going out of business, some will be tightening up their budget, etc.- but there will be opportunity in that market and it will not be as harsh as the residential correction from sky-high, unrealistic values.

While I would love to think the commercial real estate is completely independent of residential, the fact is that it is not. Commercial must have the rooftops. Anything that slows down progress of new rooftops or otherwise deteriorates rooftops (value) is in fact going to impact all areas of real estate eventually. Yes, commercial deals are based on the numbers. Land sales are down now b/c development is down. Big box retail stores will most likely be able to weather the storm for quite a while. Neighborhood shopping centers, predominately filled by local mom and pop operations, will feel the pinch much sooner. As their personal finances erode their ability to perform on their commercial lease will be harder to sustain. Make no doubt about it- if the market does not turn around "soon" then those neighborhood centers are going to start seeing vacancies, this will lower rents to get re-occupied, which lowers overall building value due to cap rates, etc.
You can't completely separate resi and comm real estate- while they have differing factors and differing needs, they are still intertwined and connected and if one goes completely down the drain the other is going to eventually follow.

The good news locally is there is some increased resi activity. Question is whether it's just this year's spring rush or a true turn around. We won't really know until probably mid-summer.