Speculators are bursting bubbles all over the city since Joe Sciolla, managing principal at CresaPartners, released his thoughts about Boston commercial real estate in 2009. Although Sciolla is often viewed as an “alarmist” by the local real estate community, he has been on the mark since late last year. As recently as just last September rents were high and empty office spaces were low, yet despite surrounding descent, Sciolla road mapped trouble. His newest predictions call for huge drops in rents (20%) and a big increase in vacant office space for the Boston commercial marketplace.
Boston’s metro center experienced one of the biggest US City booms escalating rents to inflationary highs, and therefore could be a target for financial trouble in 2009. In the last few years many investors took advantage of cheap and accessible debt, paying for properties at peak highs expecting the trend to continue. Now just like many homeowners, depressed property values and resulting debt to equity ratios are too large to justify a return or even secure new loans in many cases. For some the only escape routes may be to consider foreclosures or short sales. For others, opportunity will be knocking.
According to Sciolla in an interview from Banker and Tradesman,
“We are undergoing an inevitable market correction following the artificially inflated rents at the economy’s peak – and the markets with the biggest bubble, including metro centers like Boston, will likely take the biggest tumble.”
The Boston Commercial real estate market has been hit hard since problems recently evolved in global financial markets. Rents have dropped 20% in the last many months and could easily continue the decline. Will the bubble burst as loudly as Sciolla predicts? It’s impossible to tell, but certainly the Boston Commercial market is in for some rough times nonetheless.
Let’s remember however that there are always positive aspects to the inevitable shakedown:
Balance has been creeping into the marketplace for sometime now, and for profitable businesses paying monthly rent with strong financial projects, it’s an excellent time to pursue ownership of commercial property suitable for one’s business operations.