Recession fears in commercial real estate world may be unfounded

On Behalf of | Mar 28, 2019 | Commercial Real Estate

Financial headlines these days indicate that experts in New York and elsewhere are worried about a coming recession. Unfortunately, a declining commercial real estate market often accompanies a recession. However, current concerns about a looming recession and a coming downturn in the commercial real estate market may be unfounded for a couple of reasons.

First, overbuilding, which usually happens before a recession occurs, is not currently a problem. Late last year, the building of commercial properties made up only a little over one percent of the gross domestic product. In addition, commercial construction has not reached average levels for the past 11 years.

Second, over-indebtedness — another phenomenon that precedes recessions — is not a current issue. When business owners and homeowners have too much debt, they cannot easily absorb economic shocks. Fortunately, borrowers have not been liberal in their borrowing during the past decade, partly because lenders have been conservative in their underwriting. For this reason, the real estate industry has gone through a deleveraging process, with debts being lower today compared with past decades.

In light of the above, the commercial real estate market in New York and other states may draw the interest of an increasing number of investors this spring even with the threat of a recession looming. Of course, investors may also understandably be intimidated by the process of purchasing commercial real estate, as every deal is different. Fortunately, an attorney can help commercial real estate investors to navigate their transactions with confidence so that their long-term industry goals are achieved.