October 31, 2007 in Business

Commercial real estate market still doing well

Dan Caterinicchia Associated Press

At a glance

Outsiders buying local properties

Spokane’s commercial properties have become increasingly attractive to out-of-town buyers.

In the past two years, prominent properties, such as the Bank of America Financial Center on West Riverside Avenue and the Rock Pointe office complex at Washington Street and Boone Avenue, were purchased by companies based in larger markets. In 2006 through the first quarter of 2007, nearly 60 percent of more than 1.9 million square feet of Class A property in Spokane’s central business district and its periphery was bought by outside investors.

WASHINGTON – The excesses that led to a bust in the housing boom haven’t spread to the commercial real estate market, where the outlook is cautious but decidedly upbeat.

Led by strong growth in the office and retail segments, commercial property sales hit $401 billion through Oct. 18, outpacing last year’s $359 billion total, according to Real Capital Analytics, a New York based real-estate research firm near San Francisco.

Nationwide, construction spending on office buildings, shopping centers and other private, nonresidential projects jumped 15.2 percent in August, the Commerce Department said last month.

There are some signs of slowing growth nationwide, analysts say, but nothing compared to the residential real estate market, where foreclosures and mortgage defaults are still rising rapidly, mainly from subprime mortgages extended to risky borrowers. Most economists forecast further declines in home sales and prices, making it “the most significant current risk to our economy,” Treasury Secretary Henry Paulson said last week.

The commercial market has not been dragged down by the residential mortgage mess because for the most part, buyers and sellers are more sophisticated, and they have more financial flexibility and resources to ride out credit-market turmoil, experts said.

“It’s a different animal than the nonresidential construction business with the direct relationship between banks and business leaders, not banks and homeowners,” said Bernard Baumohl, managing director of The Economic Outlook Group in Princeton, N.J.

That doesn’t mean the market would be unaffected if economic growth stalls.

“As home prices continue to fall, people feel poor and spend less,” and that puts pressure on the profits that fuel corporate spending, said William Wheaton, research director at the Massachusetts Institute of Technology’s Center for Real Estate. He puts 50-50 odds on a mild recession in the U.S. within the next six months.

Economic data due out soon is likely to show that September was one of the slowest months in several years for all areas of commercial real estate – from apartment buildings to retail properties, according to Real Capital Analytics.

© Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Thoughts and opinions on this story? Click here to comment >>

Get stories like this in a free daily email