June 21, 2010

Commercial Real Estate bottoms out, follows national trend.

Empty storefronts line Tucson's most traveled corridors, but experts believe recovery is coming.

Empty Storefronts


Empty storefronts line Tucson's most traveled corridors, but experts believe recovery is coming.

Cruise along any major corridor in Tucson and you will see what has become a familiar sight...empty storefronts. Businesses fold when fear of the future prevents people from spending money, leaving a lot of vacant commercial property behind.

While UA economists declare the recession over, Hank Amos, of Tucson Realty and Trust, agrees that the recovery is coming, albeit slow, and jobless.

“When you’re not spending, mom and pop retail stores, and national stores, they feel it,” Amos says. “Eventually they’ll have cost cuts or they close down. That has an effect on real estate.”

In Tucson commercial real estate prices have hit an all time low. Seeing city state and federal governments fail to meet their budgets means more people will lose their jobs, and could cause commercial real estate prices to dip even lower. That could spell big profits for people looking for rock bottom investments. That's if they have the cash. With lending institutions holding tight to credit and wary of risky loans, Ron Schwabe , owner of Peach Properties, assesses the financial situation like this.

“Overall, it’s pretty sucky,” he says.

Schwabe says Tucson feels the impact of a lack of financing, either for existing or new construction.

“In the next couple of years that’s going to be the biggest effect on the market, says Schwabe. “Just a lot of loans are coming due and properties are getting revalued and there’s going to be a lot of casualties in that process.”

Yet Schwabe finds himself riding a wave of renewed interest in the urban core, downtown and nearby the University of Arizona. Peach Properties has cultivated that niche market.

“And that market is on the right side of the trend that’s out there right now. The drive to qualify thing, going futurher and further out is coming to an end,” Schwabe says.

The hardest-hit properties are those that have become increasingly obsolete because of age, building configuration or poor location. Look no farther than some of tucson's uban corridors with no shortage of the ugly factor. while local realtors feel that positive signs in the economy will eventually drive prices up, the recovery will take a long time and will unlikely reach the heights they hit back in 2005. Tucson's most heavily used corridors may take some time to come back, but now that we're traveling on the global highway, what happens in Washington and the Eurozone will impact what happens on Speedway. On top of that Amos points to the added burden of expiring tax breaks .

“The bush tax cuts are expiring, so people are going to pay a lot more taxes, whether it’s personal or capital gains or healthcare,” Amos says. “A lot more expenses are coming to individuals and you could still see jobs being cut or people being furloughted. So I don’t know what the future holds.

Amos does know that making efficiences, right sizing and operating lean, can help position organizations to take advantage of market opportunities.

“When things are going great you tend to not to run as lean and mean, so this forces companies , whether real estate or retail, any type, office industrial, it forces you to be more efficient and knuckle down,” Amos says.

In spite of the fragility of today's market, commercial real estate remains a good long term investment. Those in the industry say now is an ideal time to buy, as seller's and buyers learn the rules of the new game and have realigned their expectations. And if you believe Baron Rothschild, the time to buy is when there's blood in the street.

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