Demand for services provided by firms within the Offices of Real Estate Appraisers Industry in the US includes the need for accurate valuations of commercial and residential properties. Property values are generally required when properties and bought, sold, insured, developed, and mortgaged. This provides all parties with a fair and reliable figure to work with. The need for valuations when renovating domestic and commercial properties. This provides a guide to the property owner as to the appropriate level of investment to be made for the renovation in order to avoid over-capitalization.
The demand among tenants and investors for retail property will be affected by economy-wide consumer spending. There is a risk that consumer spending could slow at a faster rate than is forecast if there is any significant fall in asset prices (which would tend to cause households to boost savings). Moreover, any sustained period of high energy prices would divert spending from non energy-related goods and services. Sluggish consumer spending would have a dampening effect on aggregate tenant demand and rental growth in the retail sector (i.e., affecting shopping centers, regional malls and free-standing shops) – although with less effect on well-anchored properties and on properties with a large exposure to the grocery and discount store segments of the retail sector. Growth in Internet shopping will adversely affect sales at affected retailing outlets. However, retail building activity surged in 2004 through 2006 despite these risks. The resulting additions to supply could, however, add to any future softness in the retail property sector.
Weakening growth in consumer spending and in housing construction activity may, if sustained, adversely affect growth in industrial production going forward. The further relocation of manufacturing and service activities from the United States to low labor-cost countries (such as to China, India and Mexico) will, if sustained, have an adverse effect on demand for both industrial and office space. In the event that the US economy enters a period of sustained weakness, commercial property vacancies may begin to rise and rents may fall. Should this adverse scenario be realized, real estate capitalization rates could rise and values could fall, and investment in real estate investment would most likely drop off.
Subprime has turned out to be a far more serious phenomenon than pundits anticipated, and has now evolved into a credit crunch which has impacted the domestic and global capital markets. While the origin of this chain of events had little to do with CRE, the market has now sustained collateral damage. The result is similar to residential in some respects a is a widening gap between sellers requirements and buyers capacity. CRE sellers expectations have yet to lower significantly, but due to the retraction of cheap and available debt, buyers are in less of a position to offer the full asking price.
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Jacquelyn Donner
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