Breakfast Of (Real Estate) Champions

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The commercial real estate brokers at Cushman & Wakefield invited dozens of reporters into their gleaming new office on Sixth Avenue this week to share their year-end outlook and some breakfast. In this case, served sunny side up.

As headlines trumpet the dire state of commercial real estate -- office buildings, retail, large apartment complexes and the like -- Cushman & Wakefiled put a more positive spin on matters, at least in New York, the country's biggest market for office and retail space.

"If you want to call a market bottom, we're close to it," said Joseph R. Harbert, chief operating officer for the New York metro area for Cushman & Wakefield.

Among the positive signs: The percentage of empty office space shrank in December, and the number of leases signed for office space picked up in the second half of the year. However, that doesn't mean 2010 will be a great year -- just not as bad as 2009.

Average rents and occupancy rates are still falling in several Manhattan submarkets, and the amount of vacant office space in Manhattan is still unhealthy even if the rate is improving: 11.1 percent as of December compared to 11.4 percent in October. A healthy rate is between 8 and 10 percent, according to Harbert. Experts believe that average prices for commercial real estate properties will keep falling in 2009, but that the worst price drops have already happened, according to coverage in the The New York Times.

Certainly a lot of buildings are in big trouble, and watching skyscrapers slip into foreclosure is becoming a spectator sport for some real estate watchers. The worry is that as banks are forced to seize huge properties like Stuyvesant Town and Peter Cooper Village in New York City, the losses will pile up on bank balance sheets and create a new credit crisis, pushing the economy back into recession this year.

Any sign of stabilization in the commercial market makes that doomsday scenario a little less likely. My next post will be a broader assessment of the risk to the rest of the economy from commercial real estate.
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