All Signs Point to Commercial Real Estate Bust

(MoneyWatch)  A Barclays Capital analyst said in a Sept. 18 research note that commercial real estate prices have "bottomed," citing optimistic assessments by some of the investment bank's financial customers.

Wrong. Some pertinent data points:

• Commercial mortgage defaults are projected to reach 4.1 percent by year-end, which would be the highest level since 1992
• Delinquency on commercial mortgages in Q1 rose to 3.2 percent, up from 2.7 percent in Q4
• Commercial property values in 2009 are down more than 30 percent year-over-year
• In Q2 the U.S. office vacancy rate rose to 16.5 percent, up from 15.5 percent in Q1
• Delinquency rates on loans held in commercial mortgage-backed securities in Q2 rose roughly two points, to 3.8 percent
• Through July, construction spending has fallen 11.4 percent compared with the year-ago period
• Delinquency rates on construction loans in Q1 reached 13.5 percent, up from 11.4 percent in Q4 and the highest level since 1993
• Annual industrial rent is expected to fall 11.4 percent this year and another 11.7 percent in 2010
• Retail vacancy rates in Q1 rose to a record 9.5 percent

If bankers want to spin shareholders by affecting nonchalance about what's happening here, that's their business. But the indicators are clear and overwhelming: There's going to be a reckoning in commercial real estate. The question is how big, how long it will last, and what impact it will have on lenders, businesses, investors and the broader economy.