Commercial Real Estate Decline May be Slowing

Commercial Real Estate Decline May be Slowing

The Wichita Eagle

The commercial sector, battered by tight credit, unemployment and slowing consumer spending, is leveling off, according to a study from the National Association of Realtors released last week.

The Commercial Leading Indicator for Brokerage Activity declined 1.3 percent to an index of 101.5 in the second quarter.

The index is down 13.7 percent under the 117.6 reading recorded in the second quarter of 2008 and is at its lowest level since the first quarter of 1994.

Lawrence Yun, NAR’s chief economist, said in a statement that the decline means business opportunities in leasing, sales and property management are drying up with no rebound expected through at least the first quarter of 2010.

And it could be that long before some sectors of the Wichita commercial market rebound, local analysts said.

But commercial supply doesn’t outstrip demand as much in Wichita, said Steve Martens, president of Grubb & Ellis/Martens Commercial Group.

“Nationally, many markets were overbuilt, commercial real estate in general,” Martens said. “A lot of that was driven by Wall Street money in most of the major metropolitan markets.

“We didn’t have that Wall Street money. Our local lenders have done and continue to do a great job analyzing the loans they should make.”

Some downtown properties have remained on the market for several months, like the 100 S. Market property marketed by Marlin Penner and Don Arnold of NAI John T. Arnold in Wichita.

But with a plan to revitalize downtown nearing, interest in the downtown market has remained constant in a relatively down commercial market, Arnold said.

“The facade program helps, as does the work the Minnesota Guys are doing downtown,” he said.

Wichita commercial investor Johnny Stevens said the local market has benefited from prudent building.

“We’re not nearly as overbuilt in Wichita commercially as other cities we invest in,” said Stevens, who works with Wichita investor Steve Clark.

“You couldn’t believe the amount of retail in some of these cities compared to Wichita.”

That doesn’t mean that the Wichita market doesn’t face hurdles going forward. A refinancing crisis looms for some multi-family and office building owners.

“What we haven’t seen or felt yet in this market is the refinance impact,” Martens said.

“If you’ve bought a property, over the next six to 12 months you’re going to have to reset your mortgage, and the new terms will be a lot less favorable. It’ll require additional equity from you, and that will probably reduce the value of the property.”

But Stevens thinks refinancing will be less of an issue in the Wichita market than others.

“It won’t be a big problem, I don’t think, because most of these lenders don’t want the property back,” he said. “I just don’t see a big problem like we saw with home mortgages.”

Like the housing market, Wichita’s commercial market will rebound when layoffs end and consumer confidence returns, Martens said.

“I am concerned about the job market,” Stevens said. “We’ve demonized the aircraft business, and there’s no spokesperson asking the president or Congress to lay off. We need our public officials to speak up, from congressmen to the local officials.

“I don’t see the aircraft business coming back quickly. People are scared to spend money, and they don’t like the conspicuous consumption tag.”