Cloud over commercial real estate is slowly lifting in Texas

Every segment of the Texas commercial property sector suffered during the recession of 2009. Demand withered for space in offices, warehouses and retail centers, pushing up vacancy rates and lowering rental rates. Private nonresidential construction dropped sharply, reaching near-record lows. The global financial crisis temporarily brought lending to a halt. Commercial-mortgage-backed securities (CMBS) lending dried up in Texas and the U.S. as it became clear that repackaging suspect loans didn't lower risk. Banks also became wary of adding CRE loans to their books, especially in Texas, where the share of these assets exceeded the national average. ; While the recession appears to be over, commercial activity is a trailing indicator and, given still-tight credit conditions, remains a potential drag on economic recovery. Significant declines in property values and rents have raised concerns about impending defaults and foreclosures as loans come due, posing risks to the banking sector and the economy as a whole. Indeed, the share of nonperforming CRE loans at Texas banks is rising. In a positive sign, the lower rents and prices are beginning to stir demand for space as well as investor interest. In addition, sectors of the economy that drive real estate demand have turned the corner, suggesting the bottom is near.