Commercial Property Bust – Yay or Nay?

An economics professor at the University of Chicago, Casey Mulligan, has just predicted that it is unlikley there will be a commercial property crisis, based on the fact that there was very little over-building in commercial real estate during the boom years.

Mr. Mulligan writes this opinion in the New York Times,

and I quote:

it is a mistake to assume that commercial real estate shares the housing sector’s ailments............there is little if any nationwide surplus of non-residential buildings...................barring a significant further decline in business activity, I do not expect to see a nationwide surplus of commercial real estate and therefore do not expect to see commercial real estate suffer the kind of crisis that followed from the housing surplus. A commercial Real Estate Crisis? Probably not.

He even has a nice chart to back up this prediction which proves that commercial real estate was built at a slower rate than residential.

Mr. Mulligan is an economics professor. He teaches people about economics. In an American University. Therefore he should know what he is talking about. So, a few things worth mentioning, and then we can all make our own minds up as whether there is already a commercial real estate crisis in progress or not, because Mr. Mulligan seems unaware of certain facts. He also seems to think that the United States' economy is somehow un-related to the rest of the world's and Louis Vuitton closing stores and laying off staff will not have an effect on the US. And coming to the conclusion that commercial property will not suffer because it was slightly less overbuilt than residential seems to be a rather erroneous conclusion. It is hard to say why anyone would even try. Unless they worked for the US government and were trying to instill confidence. Oh wait, Mr Mulligan also works for the "Bureau of Economic Analysis," dot gov........... I have long been of the opinion that your government thinks you are stupid, and this just confirms it.

The Australian government recently bailed out their commercial property sector to the tune of $ 4 billion after foreign banks withdrew funding. The Financial Times says that £76 billion in UK commercial loans needs refinancing 2009/10.

Most commercial property funds have been frozen for the foreseeable future, USA Today estimates another $400 billion in commercial real estate loans will need refinancing in the US during 2009 as "Economic downturn pounds commercil real estate," and if you want to talk about over-building in the commercial sector, take a look at the hospitality industry.

The New York Times might want to think about getting a few more bloggers/staff writers who know what they are talking about. The seem to be reeling from lack of financing themselves. Maybe they need a bailout too. If the French gov bailed out the French newspapers, which they just did, why not?..........