Commercial real estate headed for collapse

It appears that 2009 will be a horrible year for commercial real estate. Just as with residential housing there are way too many new office buildings and strip malls. In my city about one bazillion strip malls have been built over the past few years and I always wondered who was going to rent them? I think a significant portion will go bankrupt and many others will have to reduce rent to the point that they aren't making much money on them. There are estimates that up to 20% of retailers will go belly-up this year. That's going to create a huge inventory problem for commercial real estate - and the banks who financed all of it. It's going to get ugly.

NEW YORK: Vacancy rates in office buildings exceed 10 percent in virtually every major city across the United States and are rising rapidly, a sign of economic distress that could lead to yet another wave of problems for the beleaguered financial sector.

With job cuts rampant and businesses retrenching, more empty space is expected from New York to Chicago to Los Angeles in the coming year. Rental income would then decline and property values would slide further. The Urban Land Institute predicts 2009 will be the worst year for the U.S. commercial real estate market "since the wrenching 1991-1992 industry depression."

http://www.iht.com/articles/2009/01/04/business/real.php

Update: Office space in Manhattan is cratering.

Jan. 6 (Bloomberg) -- Manhattan office rents fell the most in at least two decades last quarter as securities firms cut jobs and tenants leased less space.

Fourth-quarter rents dropped 4.8 percent to $69.44 a square foot from the third quarter, broker Cushman & Wakefield Inc. said in a report today.

Leasing slid to the lowest since 2001 as companies signed up for 19.1 million feet of space last year. Lehman Brothers Holdings Inc.’s bankruptcy, the acquisition of Merrill Lynch & Co. and the steepest plunge in U.S. stocks since the Great Depression last year contributed to the highest vacancy rates since May 2006.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aZZvAeQPTd_Q&refer=worldwide