We all know housing has been in the doldrums for quite some time, but the commercial side of the real estate business has held its own.
That’s about to change, according to a new forecast out today from the Urban Land Institute.
Next year could be the worst time for builders of offices, retail and warehouses since the recession of the early 1990s, as demand drops and lending tightens up, according to real estate consultant Jonathan Miller, who authored the study. And smaller markets that are not gateways for global trade – like St. Louis – will feel the pangs worse than most.
The problems of declining demand and tight lending will make next year a difficult time to get new projects off the ground, said Stephen Blank, a real estate finance expert with ULI.
“Developers may as well head to the golf course or the mountains or wherever they relax, because financing is going to be very scarce,” he said. “You couldn’t be in a more dicey period for completing new projects than what you’re likely to see next year.”
Central city projects, multi-family housing and coastal cities with a strong foothold in global trade will outperform the market, Miller and Blank predicted. Lesser-quality office and retail, projects with lots of debt financing and smaller markets that lean on large corporate employers face greater risk.
Miller and Blank also surveyed several hundred real estate professionals to gauge prospects for development in the country’s 51 biggest markets. They ranked St. Louis ranked 40th in commercial and multifamily investment, 35th in commercial and multifamily development and 35th in for-sale homebuilding.
St. Louis is one of several Midwestern markets that suffers from a heavy reliance on manufacturing and large corporate employers - that investors worry could see downsizing - and less of a role in global trade.
“Smaller markets are going to suffer more in this downturn,” Miller said. “They’re not on the global pathways the way the gateway cities are.”
Still, the outlook for St. Louis is better than cities like Milwaukee, Cleveland and Cincinnati, and Florida and Sun Belt cities that have been hit especially hard by the housing bust.
Read ULI’s full Emerging Trends report here (in .pdf form)