A number of commercial real estate experts are predicting 2011 will be a year of recovery for that business, continuing on trends that developed at the end of 2010.
“Although 2010 was another very challenging year for the industry, we began to see clear signs that the global economy and commercial real estate markets had stabilized and were beginning to improve with a noticeable pickup in transaction volume around the world,” said Jeffrey M. Finn, president and chief executive of NAI Global, a Princeton, N.J.-based CRE services provider.
“Companies around the globe are taking advantage of the current market, extending or renegotiating leases, securing investment properties, disposing of underperforming assets and finalizing plans for growth in the next 24 months. We expect a much more active market for buyers, sellers and occupiers as conditions continue to improve.”
The investment market improved at the end of last year as credit markets thawed, NAI Global noted, as did Santa Ana, Calif.-based Grubb & Ellis. Activity in the investment market will expand beyond properties at the top and bottom of the CRE quality scale to include properties with slightly more risk, an observation confirmed in the fourth quarter PwC Real Estate Investor Survey.
Interest in the middle of the spectrum properties such as secondary locations, Class B properties and value-added Class A properties is heating up the report said, although it adds that buyers are not rushing in droves to acquire noncore assets.
Most survey respondents expect investors to move up the risk ladder next year, but core assets will remain the prime focus for investors.
Susan Smith, director, real estate advisory practice, at PricewaterhouseCoopers LLP, said, “Although some investors are now looking to take on more risk, a full movement to secondary markets and riskier plays won’t occur until a healthier U.S. employment picture develops. To investors, job creation is the missing element needed to foster a full recovery, restore confidence, and, in turn, widen the tolerance for risk.”
Finn said one thing driving the market is that the massive volume of CRE foreclosures predicted for 2010 failed to materialize.
So the sidelines are growing crowded as real estate investment trusts, private equity investors and institutional investors have massed capital and are looking for deals.
“The real estate market’s near-term future is all about the strength and timing of the economic recovery,” said Peter Linneman, NAI Global chief economist, principal of Linneman Associates, and a faculty chair at the University of Pennsylvania.
“Job growth will be key, as a recovery without jobs does not fill much space,” he added. “As jobs are created, nearly 2 million new households will form and consumer confidence will rebound, leading to a rebound in corporate profits and economic stability. The momentum building at the end of 2010 points to a hopeful outlook for 2011.”
Grubb & Ellis chief economist Robert Bach said that with the volume of capital available, lenders and investors are more likely to consider deals further away from the “trophies and train wrecks” that dominated the 2010 market. This which should result in a 75% increase in transaction dollar volume from.
“We have challenges to overcome, and we don’t expect fundamentals to return to their pre-recessionary peaks for several more years, but we’re slowly and cautiously building the foundation necessary to do just that.”
NAI Global believes U.S. markets are showing signs of recovery. In addition, there are many other CRE markets around the globe experiencing the same improvement.
But financial problems in Greece, Iceland and Ireland are widespread to the rocky global recovery. For every Brazil and China, there are markets like Spain which show signs of a prolonged recession.
