Commercial delinquency rates are likely to rise above 3.5 percent by the end of the year, and may reach up to 6% in 2010, thanks to rising vacancies, falling rents, and a general lack of money. Lower occupancy and rental rates make it harder for landlords to pay their debt, forcing some to foreclose. Furthermore, higher underwriting standards, declining income, and lower property values make it difficult for even willing owners to refinance their loans as they come due. Numerous small office buildings have already fallen into default in San Francisco, a warning sign of impending defaults from bigger property owners.

first tuesday take: No segment of the real estate market is immune to recessions. The current recession, like previous ones, is related to the job-loss ripple which begins with redundant employees in industry, offices, retail shops, and construction leaving space empty, and it abrasively affects individual homeowners and tenants. The poison spreads to lenders and landlords, and on and on. When job losses abate, as they have already begun to do, and general public confidence starts to rise, as is now beginning to happen as the public begins to understand the actions taken by the Fed and Treasury, real estate licensees will start to feel better as well. The antidote seems to be working.

Re: Commercial real estate market softens”, from San Francisco Gate