Commercial Real Estate Bubble
Las Vegas Commercial Real Estate Bubble
You would have to be blind not to notice all of the Commercial Real Estate vacancies here in Las Vegas. Driving through town with every turn and on almost every block we see vacancies for offices, retail and specialty stores.
What amazes me is that there is still new construction taking place on commercial property.
As we see more and more businesses closing every week the vacancy rate continues to climb. I can’t be the only one that sees this.
This will defiantly be the next big hit on the economy here locally. Why do the banks continue to loan for new commercial projects with such a high vacancy rate? Do they just assume that the Tax Payers will bail them out again?
Perhaps it is time to use some common sense and consider a moratorium on new construction permits. As much as I appall Government intervention into the private sector someone needs to display some leadership. I much prefer the idea of a moratorium on new construction permits than I do another round of bank bailouts.
I am not suggesting a moratorium on casino construction. That is an entirely different class of commercial property and I realize that casino operators are taking advantage of reduced building costs.
We have not yet recovered from the busting of the “Housing Bubble” and when the commercial sector implodes it will send shock waves through the economy unlike we have seen yet. The devastation will be compounding as it will cause even more businesses to fail. The difference between the “Housing Bubble” and the “Commercial Real Estate Bubble” is that the commercial sector has the potential of being more destructive to the economy.
Is this treat of the “Commercial Real Estate Bubble” a local phenomenon? No it is not. You can see similar rates of commercial vacancies nationally.
Do I believe a permit moratorium would stop the pending collapse of the commercial real estate market here? No I do not, but at least we could lessen the blow. Las Vegas Foreclosures already leads the nation in home foreclosures. Do we really want to lead the nation in commercial foreclosures too?
It is not a question of “if” the commercial real estate sector will collapse but “when?”.
30 Comments to Commercial Real Estate Bubble
Comments
The interesting thing is that the commercial real estate market is expected to bust within the next few months, which could end up impacting more than 9 million jobs over the next 15 months. And that’s with existing real estate; building anything new in depressed markets is asinine.
I remember there used to be a time when banks would only loan money after making sure there investment was safe. It seems that in their greed to get a bigger market share they’ve forgotten about common sense.
Good points… Seems that learning the “hard way” is the only way makes an impact on a majority of people. What follows is, unfortunately, increased government regulation.
The commercial sector has really been hit hard. I work with several big commercial agents and they have started showing some residential to help out through this slump.It is hard to get any kind of financing in this climate. It would also take some guts and savings to start a new business right now!
I haven’t thought of a commercial real estate bubble, but you are right. There could be some problems there that are not being noticed. Is there anything that could really help to stop this bubble from bursting? In any case we are going to see a lot of changes concerning those commercially owned areas.
Great Post regarding the Commercial Real Estate bubble in Vegas. San Diego is experiencing something very similar at this time. The one big key is that it is so expensive for Corporations to operate in San Diego that they are pulling out and moving to states like Nevada.
I think it will be a long time before either market turns IMHO!
What I find disturbing is that many cities are dropping assessed taxable value of residential housing, but increasing it on commercial re to make up the difference – even though commercial re has fallen just as much as residential.
We are having the same problems here in the Northern Utah area. We just had a business developer sign the largest contract in our towns history, and I don’t know if that’s a good thing.
Commercial is the next big bubble and it hasn’t even really began to pop. I agree that it has the potential to be a much larger strain on the economy.
I look at it as kind of a good thing. Before everyone gets upset, my reasoning is that in order for the market to recover, the commercial section had to go through the same thing that the residential side did in order for the market to start recovering. It will be painful, there will be job loss and hardship, but until it does I don’t think the market will be able to recover. The WSJ had a great article about it a month and a half ago.
The commercial real estate market usually follows the residential market. It is definitely going to get hit even harder especially with all the crap our wonderful government is doing to kill capitalism
It will eventually recover.
There seem to be a lot more commercial developments in the Phoenix area as well that are being built, but not as easily leased or sold. Several offices in the area I work in have been vacant for almost a year now, and the other business owners are stuck paying a ridiculously high rent thanks to contracts for buildings that are gaining very little traffic due to the collapse of everything around them.
If you have paid attention as long as I have it is obvious that many times crashes are easily predictable and had a definite cause that was put in place intentionally.
Anyone remember the Savings & Loan fiasco? Guaranteeing their bad loans in advance made what would happen obvious to anyone with common sense. (Have you ever wondered who coined that term because sense is anything but common.)
Once CEOs and Corporate boards were compensated based on real profits. As soon as they started being compensated on the value of the stock it is obvious they would start cooking the books, selling off assets, laying off employees, cutting benefits and taking away real pensions using the illegal cash pensions – all of these done to artificially increase the stock price.
Now we have investors who can move their money into the company the government will rescue while hyping the companies that will be allowed to fail thereby transferring wealth from the multitudes to the chosen.
We haven’t seen anything yet. Unlike Jeff I consider this the perfect time to start a self-sufficient business or move somewhere less expensive, get some chickens and plant a garden.
That uncommon sense dictates that we understand the difference between necessities and luxuries. The only true necessities for survival are water, food, and shelter. If you work for yourself at home you can eliminate many other expenses.
As the value of the dollar continues to decline we have no way of knowing what food will cost in the future. I would rather grow food than sell my time even at $100 an hour – and the food I grow is far healthier anyway.
Those who don’t care to garden can find and support their local organic co-ops and CSAs (consumer-supported agriculture) instead. You may also want to check out the slow food and simple life movements.
I also noticed the amount of vacancies increasing. I don’t believe that the commercial real estate sector will be down in any time.
@Land For Sale – Why in the world would you want to prevent the bubble from bursting. The connotative meaning of bubble has evolved over the years as a negative describing over pricing of assets. I really cannot understand why people would want to prevent a bubble from deflating. All it does is make it more difficult to run businesses or to keep your household in the black.
We need to have these bubbles deflate and then for future reference we need to find free market methods to discourage the bubbles from forming. Handing cash to the banks after they make poor decisions is not the method to reach this goal.
This leads into a another entire discussion so I will stop there.
James Wheelock
About the las Vegas i have a dream to go there and make my fortune, and this is the only reason why there commercial Real Estate is in demand. I think the price of the real will be very high.
The problem is created by the Federal Reserve Policy. A debt model is not infinitely sustainable. The limit of that model has now been reached. Commercial Property default goes hand in hand with the inability to create jobs. Just today Johnson and Johnson announced it will be laying off 8,000 more job. Until the Federal Reserve is abolished and the debt model of our economy is addressed you can expect more of the same. You can not pay debt with debt.
This is very good point isn’t it? One has to wonder why there are new builds going up when there are so many empty spaces. The hopes are that one day all of them will be filled again and the economy enables that to happen. It’s certainly happening in home builds as well. There is a great need for housing and yet much of it is out of the price range or financial means of those who need it most.
real estates experts believed that commercial real estates will rebound from the effects of the global recession that hits the real estate industry worldwide…
Almost the same thing is happening here in Makati. Although there are lots of spaces for rent and sale left, you can see construction going on left and right.
It’s crazy to see just how extreme the Las Vegas real estate market has been. Commercial vacancies are rising everywhere thanks to the economy. Even in my small community in Logan Utah, we are seeing businesses change commercial locations to save a buck, and vacancies increasing.
considering a moratorium on new construction is very nice and effective too, moreover bank is now providing a huge scale of money on loan and that also per low interest, so it is beneficial for customer too and for bank sector too.
Most of the current REITs are doing well,” said Tishman. “They own a lot of the commercial loans but they have the ability to raise money. That will help them defer any losses.”
Tishman said there’s a total amount of $3.4 trillion in commercial loans that needs refinancing, and many local banks are holding those loans.
Curious if the City Center- that just opened up today- is making this worse. Besides hotel rooms, aren’t there condos available there too?
We have a glut of commercial properties here in Las Vegas. So yes, I would include City Center even though they have hotel rooms and condos (which we also have too much of IMHO).
In order to maintain a healthy real estate market we must strike a balance. It is supply vs demand. Once supply exceeds demand to the extent it has here in Las Vegas you see prices plummet which hurts everyone.
considering a moratorium on new construction is very nice and effective too, moreover bank is now providing a huge scale of money on loan and that also per low interest, so it is beneficial for customer too and for bank sector too.
I found your blog on google and read a few of your other posts. Keep up the good work. Look forward to reading more from you in the future.
As with any type of economic bubble, it is often claimed that a real estate bubble is difficult for many to identify except in hindsight, after the crash. The crash of the Japanese asset price bubble from 1990 on has been very damaging to the Japanese economy and the lives of many Japanese who have lived through it
Government regulation should be the primary mover! It is good that we are updated of what is going in the Las Vegas at least we can equip ourselves on what will happen regarding this matter in the future. Informative post! Keep it up!
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