Commercial real estate fundamentals lag the economy, but one market indicator in particular provides an early warning sign of impending changes. Office sublease space has increased by 12% from its recent low in the second quarter of 2007, ending the first quarter of 2008 at 81.9 million square feet. During the last downturn in 2001, sublease space more than doubled after three quarters of softening. Thus, the office market is feeling the effects of the weaker economy, but the pace of softening so far has been gradual.I thought the CBD (central business district) numbers looked good but the suburban numbers were not.
Then I heard an opinion in the news today that we are Japan in 1992, a country of spenders turning into a country of savers because of impending retirements, and that we should expect a 15 year doldrum. There's a Yale economist who as a similar opinion. And now we read that hone prices are, not shockingly, down 12%.
Personally, I don't see it. We're not Japan. The WaPo will tell you why.
Does that mean we will have another 23 year run-up? Probably not. But hopefully a prolonged downturn is unlikely with good central banking policies and sound thinking. Let's hope the Fed does the right thing this week.