Is now the time to buy?
That is the question on everyone's mind. Most of you get enough media chatter every day on the state of the real estate market and the current condition of our cratering economy. So we'll treat you to a stimulating dialogue in an attempt to answer the elusive question on everyone's mind: Has the market bottomed out?
Brad: No. We have yet to see an abundance of distress sales in the commercial sector like we have seen in the residential sector. They are only just beginning. Distress sales are happening, and banks are foreclosing. Additionally, most of the actual sales we now see involve cash or owner financing, which severely limits the number of transactions that are occurring.
Andie: Yes. We knew the market was in for a correction, but who could have predicted that the credit markets would completely freeze while the real estate market went into a freefall? Someone recently commented that the cure for our current financial woes is that everyone should stop watching their TVs and reading their newspapers (except for NNBW!) for 45 days. If the media stopped perpetuating fear, the markets would start to move again as a result of "business as usual." Look at the sales data, There are sales happening. Not many, but more than the 12-month period prior. This is a good omen!
Brad: Kiplinger's Dec. 12 edition read: "Expect an awful '09 for commercial real estate. Next year will be even worse than this year, which will end with a 75 percent decline in sales. Prices for offices, hotels, and retail malls will fall 10-20 percent in 2009, after a 10 percent drop by the end of this year. There's a double whammy coming on commercial office vacancy rates: Surging job losses may empty offices just as loads of space comes online. In the construction pipeline: 94,000,000 square feet of office space. Vacancy rates will likely push 20 percent by the end of 2009, up from 14 percent now, and 2010 will stay ugly.
Rents, which were flat throughout this year, will be down 5 percent on average next year. Concessions from landlords will abound, including offers of a few months rent, improvements to accommodate tenants' needs, and in some cases, moving expenses." We are already seeing this in Northern Nevada.
Andie: Enough with the gloom and doom! In reality, we are still taking calls daily from small business owners looking to take advantage of the economic downturn by expanding or moving. That's smart thinking if you're a tenant, now's the time to think big or think about relocating to a better location. If you're a buyer, it's time to buy!
Brad: That may be, but most of the indicators suggest that conditions will get worse before they get better. We have many clients on the sidelines waiting for the deals to sweeten, which they will.
Andie: Do you know how we'll know that we've hit the bottom? Because prices will start to increase again.
Don't expect it to be on the front page: "Market bottoms out today! Hurry and buy! Today's the day!" The key to making a smart purchase, in any market, whether the market is appreciating or not, is to buy when the numbers make sense for you, not when the media tells you to buy, not when you think the market still has room to appreciate. How many people do you know who are stuck with undervalued properties because they didn't get the memo on the day the market peaked and got left holding the bag? Expect the same now. It's clear that property values have fallen and may continue to fall, but if the price a property is offered at today works for you as a buyer or a tenant, why would you not buy or lease today?
Brad: That's easy to say, but there is so much fear out there right now, it's difficult for many of our clients to move forward. What will happen with the bailout money? Will that money funnel down to consumers? Will the credit markets loosen? I speak to clients every day who have money, but want to wait to buy or lease until the economic conditions change.
Andie: The multi-family sector is a great example of why now is the time to buy: it clearly has taken the
biggest hit in terms of property values in the past 24-36 months, but vacancy rates remain stable. There are already some fantastic buys available in the multi-family market. We've said it before, and we'll say it again: while most of us understand the philosophy of "Buy low, sell high," in reality, most of us react to the market as buyers or sellers, falling in step with the masses instead of making informed, intelligent decisions. Many investors got caught up in the frenzy in 2005, buying every investment property they could get in a seller's market! Now that we're in a buyer's market, most buyers aren't buying. Assume the market is at or close to the bottom now, and make your purchases based on sound financial information.
Brad: Making decisions based on sound financial advise.....now that, I agree with!
Andie Wilson and Brad Bonkowski
work as principals for commercial sales and leasing with Coldwell Banker Commercial Premier Brokers in Carson City. Contact them at 888-6200.
