Commercial Real Estate Follows Economy Into Recovery

Explaining that the commercial real estate sector closely follows the national economy, National Association of Realtor Chief Economist, Lawrence Yun, expressed a positive outlook for the commercial market. Speaking at the Commercial Business Trends Forum during its Midyear Legislative Meetings & Trade Expo in Washington, D.C., he clarified that commercial markets lag behind the overall economic recovery by about 12 to 24 months.

Improvements in the overall economic picture, with stock markets regaining almost all of 2008 and 2009’s loses and the corporate sector looking to invest its substantial cash reserves, commercial real estate should pickup even more this year.

Of course, some negatives still may overshadow financial markets: Greece may yet default, and the states of California and Illinois are in danger of reneging on their debts as well. Unemployment, while appearing to have improved, most likely will remain high for some time to come. Financing for commercial real estate continues to be problematic, however, so lack of cash may prevent smaller companies or companies without cash reserves from making investments in new property.

According to Yun, the most promising sectors are multi-family properties and office space. Leasing rates are up in New York City. In robust markets like the nation’s capital, vacancies continue to fill. According to John Sikaitis, Senior Vice President of Research at Jones Lang LaSalle, believes that both of these markets may stagnate due to the uncertain political and undetermined changes in financial regulations.

Even slower to improve are industrial and retail space sales, but they are expected to continue to improve. Due to the expansions in the energy sector, Sikaitis anticipates more vigorous growth in Houston. He also expects limited continued market tightening in the Denver area resulting from the emergence of the natural gas industry. In Los Angeles, increased recovery in the first quarter appears propelled by both the gaming and entertainment industries.

He explains that different areas of the markets, while continuing to recover throughout the year to come, will do so at differing rates of speed. The assumption is that across all markets, overall rents will continue slow growth.

The Commercial Real Estate 2012 Lending Survey reveals that commercial lending standards have tightened for smaller businesses. Many transactions for smaller businesses and investors fell through due to lack of funding even while larger transactions were completed. Many long-time investors continue to be unable to get loans. Until the current lending climate changes, growth in the commercial real estate sector remains hampered.

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