Atlanta Fed President: Real Estate Recovery Critical
While it accounts for a smaller part of the economy than housing, commercial real estate is critical to the nation’s financial sector. And recovery of the financial sector is necessary for economic recovery, Atlanta Fed President Dennis Lockhart said during a recent speech to the Greater Miami Chamber of Commerce.
About $2.5 trillion in commercial property loans are on the balance sheets of financial institutions and in commercial mortgage-backed securities markets, compared to about $11 trillion in total residential mortgage debt. Commercial real estate includes retail, office, hotel, and industrial buildings. All those categories are facing problems, Lockhart explained.
Weakness is widespread
In addition, hotel occupancy rates dropped about 8 percent in the fourth quarter of 2008. After high gas prices curtailed summer tourism, many companies are reducing business travel in the weak economy.
With the weak economy and rising unemployment, office and industrial vacancies have been rising. “In virtually all segments of commercial real estate, there is downward pressure on property values because of new construction coming on stream—construction started before the recession fully set in—coupled with the effects of the economic downturn,” Lockhart said in south Florida, where real estate is a particularly important part of the economy.
Concerns exist down the road
March 31, 2009