For immediate release: December 16, 2008

Commercial Real Estate Downturn Looms, Says Dallas Fed's Economic Letter

DALLAS—Tougher times appear to lie ahead for the commercial real estate market, according to the December issue of the Federal Reserve Bank of Dallas' Economic Letter.

Economic Letter can be found at: http://dallasfed.org/research/eclett/2008/el0812.html

In "Financial Crisis Casts Shadow Over Commercial Real Estate," economist Roland Meeks finds that worsening macroeconomic conditions are hurting commercial real estate fundamentals and the intensification of the credit crunch is dampening the commercial market.

"Now, increasingly ominous parallels with the residential market are surfacing," Meeks writes.

While a decline in commercial construction spending alone is unlikely to greatly damage economic growth, falling property values could result in losses for the banking sector, according to Meeks.

Such losses could impair banks and the financial sector, posing added risks to the economy from a reduced willingness to lend.

"One factor that might limit these risks is that the commercial real estate sector wasn't as grossly overbuilt heading into the current economic slowdown as it had been in the early 1990s," Meeks says.

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e-mail: alexander.johnson@dal.frb.org

 

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