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Falling Commercial Real Estate Prices Lower Barriers For Entrepreneurs

Written by Ken Gaebler
Published: 6/16/2010

Many franchisors are taking advantage of low commercial real estate prices to open multiple new storefronts.

A poor commercial real estate market has brought good financial news for entrepreneurs by lowering the cost of storefronts and office space needed for many small businesses, although approval processes remain time-consuming.

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A recent report released by Moody's Investors Service found a 42-percent drop in commercial property prices compared to late 2007. Office space showed a 32 percent decline, while retail space prices had fallen 28 percent.

However, entrepreneurs who do find a space are finding it difficult to secure a loan, because high default rates are causing banks to be more cautious. Real Capital Analytics says that commercial loans have a default rate of 4.2 percent - a number the firm expects to rise to 5.4 percent by next year.

The Wall Street Journal reports that because of the caution being shown by banks, the loan process may take an additional 30 to 60 days.

The dropping prices have also created positive franchising news. The Star-Ledger recently reported that many commercial landlords have started leasing to franchise restaurant owners to fill their vacant properties, and are often giving entrepreneurs large concessions to close the deal.

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