SHORT HILLS-- The full impact of the economic downturn has likely not been felt yet, although there are signs of that ongoing impact in the form of higher commercial real estate vacancy rates and reduced rents. And when the economy—and real estate—do bounce back, the uptick won't be a quick one. That was the message delivered by a panel of experts at the annual meeting of NAIOP-New Jersey, held at the Hilton Short Hills.
"We've hit bottom, and we do see things starting to rebound," said David Welch, CFO of SJP Properties of Parsippany. "The market will improve, but we are just not sure yet of the trajectory."
From the perspective of commercial real estate, while industry players have struggled, this downturn hasn't seen "some of the spectacular failures" of pass cycles, noted Peter Grant, deputy real estate editor of the Wall Street Journal. This time around, the major failures have largely come in the financial sector. Ironically, the latter group may be helping to stave off massive real estate failures. "Are the banks covering up the problems by not foreclosing?" he asked.
From an economic standpoint, "the past couple of years have taught the virtue of humility," said Patrick O'Keefe, economic research director for J.H. Cohn in Roseland. "All things considered, people in this business are feeling pretty good. There has been no 'Titanic'."
And while the recession may technically be over because some of the indicators have started pointing upward, "the economy is still losing jobs," O'Keefe noted. "And because this recession was caused by a financial crisis, my prediction is that it will be the slowest recovery of any post-World War II recession. Consumers will likely save more and spend less.
"Employment growth will be the driver for what those in commercial real estate want to do," he said.
On that note, "we still have more office space than we need," said David Houston, president of Colliers Houston & Co., Teaneck. "The 'store' is full, and there's lots of stuff on the shelf."
Houston pointed to 2011-2012 as a watershed period, "because that's when the deals done in 2006, prior to the recession, come due. What will happen then remains to be seen." And on the industrial side, it's all driven by warehousing/distribution, with its fate tied to consumer spending. Again, the rebound is likely to be slow, in Houston's view.
Where do the capital markets stand in all of this? 'There has been some improvement," noted Lisa Pendergast, managing director of the Jefferies Group in Stamford, CT. "Some of the banks and life companies are in a position to lend, but they are doing so in small sound bites. People are not comfortable lending big deals."
Other trends, according to Pendergast: Much of the lending that is occurring is in the form of refinancing rather than new loans. And the various government assistance programs have helped.
"Still, the market's volatility makes is difficult to quote a loan and close a loan, and see where it's going to price," she concluded.
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