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The Decline of the Commercial Real Estate Industry
from:The real estate is divided into three classifications, and commercial real estate is one of these classifications. The other two are residential and industrial real estate. Commercial real estate, as the term implies, refers to the type of real estate that is used for business purposes. Properties that are considered commercial real estate are retail properties, office structures, shopping malls, hotels, warehouses, production facilities, apartments and the likes. Other than these, any kind of land that will be utilized for the possible development these kinds of structures will also be referred to as commercial real estate. With exception of single-family residential real estate and single-family residential lots, almost every structure can be considered commercial real estate.
Unfortunately, many experts revealed that the status of commercial real estate is declining in the United States. Commercial real estate industry has dramatically fallen during the recent years. As a matter of fact, the value of commercial real estate, which is in possession of huge pension funds, dramatically collapsed by 2.5 percent during the third quarter of 2003 as reported in boston.com. This data can be retrieved as well from the MIT Center for Real Estate. According to the MIT Center, this finding may serve as a potential indicator that the residential real estate market is poor, which in turn affects the commercial real estate industry as well.
Studies have also revealed the decline in the rate of investment in commercial real estate. Accordingly, this trend in the market was not evident in the past four years. A good number of experts have revealed that this phenomenon is primarily the result of scarcity in capital. No less important to note, this constraint in capital is a major factor that explains the decline in the market of commercial real estate. With the discouraging commercial real estate market trend, investors and lenders are losing confidence in the real estate industry, and this will truly affect the productivity of the industry.
Truly, worried and unconfident investors and lenders are counterproductive towards the economy as a whole. As a matter of fact, Bloomberg reported that investors hold back the closing of transactions due to the fear that the values of commercial properties will be shrinking in the near future. On the other hand, a fall by five percent is anticipated in the following two years to come. However, the fall in commercial properties that was predicted depends on the type, quality, and location of the properties. Undoubtedly, the present poor status can be attributed as well to the steadily rising cost of living.
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