I was on the Southern California radio on Saturday (600 KOGO) to talk about commercial real estate. It was fun. You can trust your kids to set you straight, as they told me I sounded nervous and had too many "ahhs," "umms" and dead air. Not good, but I think they got a kick out of hearing their dad on the radio. The final question I was asked was for my prediction on a commercial real estate rebound.
I am always playing Monday Morning Quarterback and later Saturday, as I thought about my answer, I realized did not expand enough on what will trigger a comeback. I said that a return of the finance markets will play a large part in getting the commercial real estate back on track. This is only partially true. The second key for commercial real estate is a recovering economy. In the current weak economy, commercial real estate is seeing increased vacancies and flat or declining lease rates, which signify lower valuations. A return of real estate financing will allow for sales that are not distressed (because distressed sales comprise the majority of the sales occurring in today's market). The availability of financing alone does not mean that prices will rebound, it just means that buyers and sellers will have a better idea of the market, and that distressed sales will no longer dictate the market. Commercial real estate won't rebound until financing is available and the economy improves, driving demand for real estate space.