Commerical Real Estate Troubles

The volume of office space sold in the final quarter of 2007 fell 42 per cent to $26.5bn, compared with the same period in 2006, according to data released on Friday by Real Capital Analytics, a real estate data company. Sales of property portfolios fell to $5bn, after logging $105bn in the first three quarters.

"What's happening now is a capital markets event," said Dan Fasulo, managing director at RCA.

Spreads on CMBX, an index that tracks commercial mortgage backed securities, have recently suggested that default rates are expected to reach three times historical levels. But analysts say commercial property is not expected to suffer the same slump as housing because it has not experienced such high levels of overbuilding.

However, if the US economy experiences a deep recession, commercial property is considered to be at risk. Demand for space is largely driven by the health of the business environment.

Financial Times