Commercial real estate expert: full recovery 2½ years away, vacancy rate key
By Owen Eagan,
Division Manager for Southern California, The Saint Consulting Group
During a panel discussion for Pepperdine MBA alumni in downtown Los Angeles last month, Robert Chavez, former CEO and founder of Staubach LA and current president and CEO of Guardian Commercial Realty, said that a full recovery in the commercial real estate market could take 2 ½ years. Chavez added that one of the best key indicators for this market is vacancy rates.
Recent data from Reis Inc., a leading real estate market research firm, seems to support his prediction. REIS reported in February that the vacancy rates at U.S. office buildings could rise to 16.7 percent this year and could reach an 18-year high next year.
The graph below depicts U.S. office vacancy rates since 1991.
It is no surprise that these trends track closely with recessions. However, it is apparent from the graph above that it takes significantly longer for this sector to recover. For example, the National Bureau of Economic Research states that the recessions of 1990 and 2001 lasted only eight months. Unfortunately, this is further evidence that Mr. Chavez might be right.
Owen Eagan is division manager for Southern California for The Saint Consulting Group, email eagan@tscg.biz, phone 818 827-7127
Real estate seems to be the worst hit by the economic impact, being the most expensive thing that also affects everyone right down to the poorest people, it’s not really surprising. It is interesting how they came up with the estimate of 2.5 years though – do they expect other markets to increase significantly more than this before this time?