|
Real estate market softens
|
 |
November 9, 2001: 1:34 p.m. ET
Rental agents face rare industry slowdown; commercial sector looks weak.
By Staff Writer Joseph Lee
|
NEW YORK (CNNmoney) - Jean-Luc Giuliano is settling in for a long, cold winter.
The New York City real estate broker who specializes in rental property has watched business decline over the last 12 months as a slowing economy chips away at consumer sentiment -- a situation made worse by the events of Sept. 11.
"It's like night and day," he said. "Last year was definitely a market where a landlord could ask for a price on an apartment and get it no questions asked. But this year, many owners have many unrented apartments, and some are offering one-month free rent."
He said rents in Manhattan -- especially those near the World Trade Center area -- have come down an average of 10 percent, and in some cases as much as 40 percent, since hitting their high in the late 1990s.
| |
|
|
| |
|
|
| |
The client told me that he believes there was going to be a mass exodus from the city due to the Anthrax scare.
|
|
| |
|
|
| |
|
|
| |
|
|
| |
Jean-Luc Giuliano
Rental Agent |
|
To be sure, the industry slowdown in New York began before Sept. 11, but the terrorist attacks and continued threats of bio-terrorism have made matters worse.
"The day that anthrax was found in New York City, I had a client back out of a lease-signing on a great apartment," said Guiliano. "The client told me that he believes there was going to be a mass exodus from the city due to the anthrax scare."
Patricia Burnham agreed. The owner of a New York real estate company said worries over corporate layoffs and terrorism dragged sales and rental prices lower in New York City. Many Manhattan residents have even consider moving elsewhere.
"A lot of my clients have decided to move or hold on to their properties in Southampton, Long Island, just in case something happens in Manhattan," she said.
The downward pressure on the real estate industry, however, is by no means specific to New York.
Burnham said San Francisco is suffering the same fate, as demand softens and prices drop.
"The dot.com bubble has burst, plus the economy is softening," said Burnham. "San Francisco was already weak before Sept. 11."
Commercial space
Gary Boston, real estate analyst at Salomon Smith Barney, said many people initially thought the loss of commercial space in lower Manhattan would make existing space more valuable. But a large number of companies in New York already had excess office space due to mergers and acquisitions.
"After the attack, they saw an opportunity to dispose some of that excess space," he said. "For example, JP Morgan and Chase don't need the same amount of office space as a combined company."
According to a report by Grubb & Ellis, a real estate services firm, it will take more than five years for occupied office space to reach pre-disaster levels again.
Robert Bach, national director of market analysis at Grubb & Ellis, told Money magazine in October that rental prices on top office spaces, already bruised by depressed corporate earnings, could fall further.
He said property values for commercial space -- office, industrial and retail -- also should head lower, but he said the economic downturn had a greater effect on prices than the events of Sept. 11.
For a long time, the real estate market had looked invincible to the softening economy, but Boston said the health of the real estate market is invariably tied to the economy.
America's suburbs
Elsewhere, it is still business as usual for Rick Tesmer, who owns a home building business with his brother Bob in western New York State -- where a single-family house can be priced between $200,000 and $1 million.
He said the housing market in his region has remained relatively stable, helped by declining mortgage rates as the Federal Reserve slashed interest rates 10 times this year.
The 30-year fixed mortgage rate dropped to the lowest level in 30 years -- the national average currently hovers at 6.45 percent.
"In our market, I wouldn't say it's strong, but it's not weakening because of the lower interest rates," said Tesmer.
Greg McDaniel, who builds homes in southeast Virginia that range in price between $250,000 and $500,000, feels the same. He said his company builds 10 to 12 homes per year on average -- and so far, he has received 8 orders for next year.
|
|
|
A new single-family house built by Greg McDaniel and his crew in Virginia. | |
He said business has been good for a while, but he knows the good times may soon come to an end.
"I know we are probably going to have a correction in the housing market soon," McDaniel said. "The housing market typically lags behind the broader economy by a couple of years. The last time we saw a weakness in the market was 1996."
In September, existing home sales on the national level dropped 11.7 percent, according to the National Association of Realtors (NAR), while new home sales slipped 1.4 percent.
"You also have a lot of baby boomers entering retirement, and you will see a lot of those people selling their homes and move into rentals," said Boston. "But that's a positive for the rental market."
He notes their children will give the sector a boost as well.
"You have the children of the baby boomers, who are entering their prime renting years, 20-to-29 years old," said Boston. "So that's a big age bubble coming through the pipeline." 
|
|
|
|
|
|
|
