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Where is the Recession Going?

Are we in the middle of the Recession or Just the Beginning?

Economists are all over the time space continuum when they speak about the economic downturn and project a recovery. In November, and economist from Tulane was projecting a start of recovery at the end of this quarter. At the other end of the spectrum, there are those who don't see the economy turning around till the first quarter of 2010. Retail closings, banks continuing to perform badly and job losses lead me to believe that we are somewhere in the middle of the recession but we have three or four more months of loss before we reach the bottom. As stimulus dollars are slowly released to the banks, people will hold tightly on to the money waiting to see which way the wind blows before potential lending opens up. This will delay recovery and drive us deeper into the downtown.

Now, however, around Connecticut, the recession has come home to roost. Circuit City is working to close its big box stores. Each closing will leave large chunks of retail vacancies on the block. There won?t be other big box retailers moving in so those spaces will be ripe for re-use. But the question is, what type of space is in demand in this new era of downsizing?

Stamford?s office market is showing signs of economic fatigue. In 2001, after the World Trade Center fell, financial firms flocked to Fairfield County. Greenwhich became the hedge fund capital of the country and Stamford filled office space with financial service firms. Rents were climbing and the value of office buildings followed, doubling in two years.

It?s a different picture today after the fall of the financial titans. Currently the office market is seeing about 18% vacancy, much of it sublease space. 22% vacancy equal to the red days of 1991-92 is predicted by 2010.

Rising vacancy translates to lost jobs and discretionary income. Ripples run through every level of the economy, from the barber to the Landlord. As shops, restaurants, salons and other retailers that provide services of ?choice? rather than the necessities of daily living see their customers dropping off, sidelined by job loss or wage caps, or fear that they may be the next to be laid off, the retail Landlord will continue to see vacancy rise.

Rising vacancy rates will continue to drive down the value of buildings. The first wave of real estate owners to feel the burn of the economy are those that have loans coming due or those with low occupancy in their properties who may need a loan to keep the properties operating. Larger banks are not lending and those that are, such as citibank are looking hard at the credit-worthiness of the borrower. Local banks like Quinnipiac Bank and Trust or the Bank of Southern Connecticut and a regional bank like Liberty Bank are still lending, however they are not making huge loans as the banks were just last year.

Around the state, as around country the recession has come home to roost. Even traditionally recession proof industries like universities and hospitals are feeling the burn. Yale lost half its endowment in the market crash. Harvard lost a third. It?s projected that enrollment will drop as people struggle to pay for college. Medical institutions are being hit with people putting off procedures due to fears of being out of work, or waiting until ?Things turn around?. Municipalities are cutting payroll too. Mayor Bloomberg laid off 20,000 workers last week.

Some are projecting ten percent national unemployment by the end of the year. That unemployment will cut across all industries as world economies adjust to meet demands of defaulting economic systems. It will be a hard adjustment for americans who have spent the last twenty years growing, spending and consuming products. Cutting edge manufacturers and new technology creators are going to be the ones to lead us out of the economic slump. Stimulating the economy so that every one starts buying multi-colored ceramic jack o lanterns, neon valentine hearts and mechanical easter bunnies to put n front of their newly refinanced homes is not the long term answer.


February 1, 2009

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