Commercial real estate is a major part of the US economy. Commercial real estate includes offices, manufacturing, retail and apartment buildings. When a recession hits, it can be felt in the real estate sector.
What Causes a Recession?
A recession is caused by the loss of consumer confidence and business. This, in turn, stops consumers from purchasing items putting money into the economy. When this happens the retail market slows so fewer jobs are added and cutbacks are made. Since consumers aren’t purchasing products, manufacturers cannot continue to produce the same number of products. This forces them to cut jobs or perform layoffs due to lack of work.
The loss of confidence causes consumers to get into a defensive mode and try to save money instead of spending it on non-essential items like restaurant meals, fashion and movies. Due to the lack of spending at commercial establishments, the business may close, leaving empty buildings and offices.
If companies are closing, they are no longer opening new locations. Commercial real estate development contributes trillions of dollars into the economy every year. Without this new development, this money isn’t going back into the economy.
Signs to Look Out For
It is important to keep an eye out for signs and causes of a recession. Here are a few things that you can watch out for.
Falling House Prices
Falling housing prices cause a negative effect on consumer wealth. The decline in wealth will cause the consumer to spend less. Many homeowners have negative equity. This happens when they owe more on their house than what it is worth. Knowing that they have this debt keeps them from borrowing more, encouraging them to save. After a while, this will lead to foreclosure.
Rising interest rates limit liquidity. Liquidity is the amount of money that you have to invest. Rising rates can be good for people that are saving money, but they have a negative affect on consumers that have outstanding debt.
Fluctuations in the Stock Market
When investors start selling off their stocks to invest their money in other more stable options, stock prices go down. Lower stock prices will lead to falling business profits. Falling profits then lead to layoffs and less production, which can lead to a decreased need for commercial warehouse space.
Slowdowns in Manufacturing Orders
When orders slow down, profit declines. This decline in profit leads to less money to pay employees. If the money isn’t available to keep the business running and pay the employees, employees will be laid off or let go.
When manufacturing and production slow due to lower demand they are forced to lower their workforce, which increases unemployment. Individuals that are receiving unemployment are now only receiving a portion of what they were making while they were employed. Due to the fact that their disposable income has now decreased, they are no longer be able to pay their current debt obligations leading to defaults on loans. This also leads to reduced retail spending, which can lead to commercial leases being broken early.
We are knowledgeable about how the recession affects the commercial real estate sector. Without having this knowledge and experience, it can be impossible to succeed. We can help you avoid mistakes when investing in commercial properties.
You need to take into account all of the issues of renting or purchasing a commercial property from location, types of businesses you will rent to, property management, and the amount of rent you will charge. All of these factors will determine how profitable you are.
If you are in financial burden, by knowing your options you can avoid bankruptcy. We have helped many individuals and companies find financial success.
Contact Us to Learn More
Commercial real estate is a big investment. There are many decisions you need to make before you consider investing your time and money. We are experienced and dedicated to what we do, and we will provide you with care and results. We are here to help you make the right decisions and sound financial choices.
Here at Landwin Commercial Real Estate, we have offices in Encino and Century City, CA, and we have invested in properties from Florida to Alaska. Contact us today to learn more about the services we provide. You can reach us directly at 818-783-4343.