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Watch for the bottom

 

Jacksonville Business Journal

Buy low. Sell high.

This mantra gets lost during an investing frenzy, whether it be in stocks, homes or other assets.

So, too, do people abandon hope when said market declines. With home prices declining, stocks gyrating and international markets askew, many investors are holding onto their money.

Markets will improve again, though, and the lower the point that investors buy in, the more they will make when the inevitable uptick comes. Guessing a market's bottom may be just as hard as gauging the top, but opportunities will come soon as the economy tightens.

Commercial real estate may present some of the best chances for long-term appreciation. Demand has slackened along with the economy, but the commercial real estate industry is fundamentally stronger than the residential market. Supply and prices did not rise as rapidly in commercial real estate, so the correction will be shorter and the recovery sooner.

A report prepared by Wachovia Corp.'s economics group, led by Senior Economist Mark Vitner, stated that the impending commercial real estate correction will be "relatively mild compared with past recessions," with property prices and construction both declining by upwards of 20 percent over the next two years. Vacancy rates also should increase in the short term as companies reduce their staffs or limit hiring.

Investors who endure the pain now will reap larger returns when the markets recover. The city of Jacksonville can help speed the local recovery by limiting stormwater fees, property tax increases and other costly operating expenses that hurt commercial property owners by hindering values.

Maintaining a competitive operating environment also will help the businesses who occupy the region's commercial space. The local unemployment rate was 4.6 percent in January, the most recent month available. That was up from 4.3 percent in December and 3.8 percent in January 2007.

Though local employment is strong by historical standards, the prolonged shift is alarming and could get worse if jittery companies cancel, or scale back, expansion plans as operating costs rise and revenue prospects dim.

Increased operating costs also could impair businesses' abilities to repay their loans. This would hurt local banks, which have increased lending to businesses and manufacturers as the real estate market has softened.

Banks must continue to lend if companies are to keep hiring, employees are to keep spending and investors are to keep buying. Markets will strengthen as more opportunities are seized.

jacksonville@bizjournals.com


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