It’s no surprise that the commercial real estate market – both in Texas and nationwide- is not in good condition. Vacancies remain high, new construction remains dormant and lease prices continue to drop.

However, according to a Dallas-Fort Worth area economist, we shouldn’t be too concerned about the Dallas commercial market hitting the lows of the late 1980s.

Demand for Commercial Property Remains Low Amidst Poor Credit Quality

The demand for commercial property still remains low, partly due to the poor credit quality of the commercial real estate loans. Smaller banks and lenders may really feel the hit of the poor commercial sector as commercial loans become simply too hard for most borrowers to secure.

Economist Bernard Weinstein, of Southern Methodist University, understands the concerns of today’s commercial sector, and agrees that the Dallas commercial real estate market will likely continue to flail over the next year.

To help the difficulty being experienced in the commercial real estate market, Weinstein points out that lenders and regulators are going to have to find some kind of forbearance program to help alleviate the mortgage-backed securities in the commercial market.

Dallas-Fort Worth Commercial Sector Expected to Rebound Quickly

However, even given the precarious state of the commercial real estate market in Dallas, Weinstein doesn’t see it threatening the economy or financial institutions that carry much of the residential mortgage-backed securities.

Part of the problem may lie with the fact that many mortgage-backed securities will mature over the next year or two, thereby leaving a void in the market when no one comes in to refinance the loan.

Many banks, realizing this dilemma, have chosen to allow the borrowers to extend the loan instead of give up the property.

The Dallas-Fort Worth sector is expected to fair a bit better than other parts of the country, as there is still life in the commercial sector and still plenty of jobs to be had.

Weinstein hopes to see the economy in the Dallas-Fort Worth area rebounding in 2011, at which time commercial properties will begin to see new leasing agreements.

Property sales in the Dallas-Fort Worth commercial arena are dismal, at best.

Sales of Dallas commercial real estate -which includes office buildings, shopping centers, apartment buildings and warehouses – saw an 80 percent decline in the second quarter of this year, compared to the same quarter last year.

Of all commercial real estate, sales volumes of office buildings were down by a whopping 99 percent from last year at this same time. Sales of retail properties came in at a close second, falling 80 percent from this time last year. Apartment building sales were down by about 15 percent.

In addition to poor sales volume numbers, the prices of commercial property in the Dallas-Fort Worth area fell sharply, as well. Office building prices, per square foot, fell by 34 percent since last year, while industrial properties fell about 42 percent.

Perhaps the only bright spot in the Dallas commercial real estate industry fiasco is the retail sector, which saw an impressive increase in sales of 55 percent from last year.

Where is the Commercial Real Estate Market Headed?

A new survey by LoopNet Inc. reveals that only about 10 percent of real estate experts expect the market will recover by the end of 2009, while more than 50 percent feel that is will take until the second half of 2010 to turn around.

In fact, most real estate experts also expect more declines throughout 2009, and expect values to continue to fall another 10 to 20 percent.

Investors purchasing commercial properties are therefore realizing the importance of long-term gain. If the industry bottoms out this year, then purchasing now may be a smart investment decision, provided you hang on to the property until the market rebounds.

Most investors consider apartment buildings to be the smartest investment decision around.