The global credit crunch that took hold of financial markets in the summer is now taking the steam out of commercial real estate.
Office buildings, warehouses and shopping centers looked like a safer haven for big investors wary of falling prices for houses and condominiums. But now, the commercial side is feeling the pinch.
Even Southern California, which has been one of the country's favored markets for investment in recent years, has seen sales cool off and prices paid for business properties decline. Some owners are holding onto their buildings and waiting for the market to improve.
But with a falling stock market, a shrinking dollar and widespread concern about recession, real estate deals are getting dicier.
"The biggest issue on both sides -- seller and buyer -- is that no one wants to pay or sell at a bad price," said real estate analyst Raymond Torto. "They are all searching for 'the market.' "
One of Southern California's largest office landlords, Arden Realty Inc., recently put six buildings on the block and then yanked most of them off. Two were in Los Angeles County, two in Orange County and two in San Diego.
Arden valued the properties at more than $200 million but didn't like the offers it received.
"We're moving forward on one sale in West L.A. and pulling back on the other five," said Robert Peddicord, Arden's chief operating officer.
"We think we will get better values next year."
The underpinnings of most of Southern California's office markets are still strong, though, Peddicord said. The economy has been growing for the last few years, so many businesses have expanded and rented more space.
As a result, offices are harder to find and landlords have been able to raise rents, especially on the west side of Los Angeles County, where rents are hitting record levels. There has been little office construction since the early 1990s, so property owners have little new competition to contend with.
Offices are the largest category in the commercial real estate field, but empty warehouses and other industrial buildings are hard to find in the region. Most apartments have tenants and average rents are rising. The shopping center industry is also healthy.
So while many investors are having trouble finding money to invest in big buildings, the commercial property business is more stable than the troubled single-family home market, which has seen sales volume drop to 20-year lows, with prices edging down as well.
