How did the Housing Crisis trigger the Commercial Real Estate Crisis?
Primarily 3 causes: 1. Demand for space: as the housing market crashed, jobs in the construction and real estate industries dried up, decreasing demand for office and industrial space that housed those companies and companies that support them. And as people saw the value of their houses plummet, they cut back discretionary spending, reducing demand for retail space. 2. Land prices: reduced demand for land for housing had an indirect impact on the value of land held for commercial development, as did lack of demand for new commercial properties (see #1) causing the value of land held by developers to plummet and erode their net worth. In desperation, developers sold land for whatever they could get for it to raise cash to pay down debt, causing further reductions in prices in the meantime. 3. Availability of credit; last but not least, as banks and other lenders started seeing the economy contract and losses from housing loans starting to pile up on their books, they (and the regulators) took a conservative stance on all real estate lending. It then began a spiral where lack of credit caused lower values, which caused loans to be called or not extended, which caused values to drop, which caused more loan defaults.
