The Next Big Crisis in Real Estate

In our hard-hit economy we’ve all seen the results of the housing crisis on neighbourhoods, homes emptied of residents and belongings, yards overgrown, and for sale signs peeking out of the knee high grass. We are reportedly on the verge of recovering from the residential real estate crash now and in the months to come, but the next crisis is apparently about to transpire.

Because of the struggling economy, many businesses are declaring bankruptcy or downsizing their operations. In every city in the country you can see evidence of this occurrence; closed store fronts and empty retail spaces at malls are commonplace pretty much everywhere and the problem is going to increase over the next year it is predicted. Many of the businesses that are having problems and either closing stores or filing for bankruptcy are well known retailers and businesses. Even some malls are reportedly on the verge of closing.

As these companies downsize to save money and close the doors on shops or office locations, there will be as a result an increase in office and store vacancies. Many of the remaining commercial tenants who are renting spaces from building owners have already been negotiating for lower rents as the economy has progressed through this current crisis. Because the public is earning less, they’re also spending less; it is much harder for retailers to make their bottom line and afford the inflated rents that they were able to pay for when the country was still enjoying the boom.

Unfortunately, what this also means is that anyone who took out loans to finance or buy a commercial building will be bringing in less income to pay the loans to their lenders. It is forecasted that over the next year or so some of these business loans are going to be heading to delinquency or defaulting. This in turn may end up causing the banks even more problems than they’re in now.

The big question on the mind of so many people is if this is going to cause even more problems than the residential real estate crash has. Very often the transition back to having construction helps with getting an economy rolling again after a recession, but if there is going to be this much empty commercial and residential space left empty the country is not going to be able to bank on that happening in this case.