Commercial Real Estate Activity is on Positive Mid-Term Ascent
Lack of credit, anemic job growth and a high level of uncertainty have lead to choppy markets in 2010. Values rallied early in the year only to pull back by mid-year as the anticipated economic recovery failed to materialize. In the first quarter investors expected the recovering economy would begin to improve fundamentals in the second half. But as economic growth slowed to a crawl, commercial real estate values have pulled back as of mid year. According to Moodys/REAL Commercial Property Price Index, pricing had improved nationwide by 8.6 % from their October 2009 lows, but by mid year had pulled back to a modest 4.2% improvement. The index reported that even after rallying in the first quarter pricing was off .9% for the first half leaving the market 41.4% below the peak level realized in October 2007.
Nonetheless market activity is up markedly. According to Real Capital Analytics July volume was more than double the prior year level. However the bulk of the activity has been in core assets in primary and major markets. Value added investments particularly in secondary markets still struggle to find a market.
While strong investor demand for the best assets has begun to create greater transparency and pricing clarity, the overhang of distressed property is keeping a lid on prices and putting downward pressure on values. This will likely play out over the coming months if not years. As markets and values improve, banks which have been reluctant and patient sellers will begin to unload or otherwise force the sale of REO or underwater property. It doesn’t appear that the wave of distressed property sales will push the market below the prior lows, but rather the assets will be sold into any meaningful uptick. This unwinding process will create opportunities for investors to buy on the dips as the market takes a crooked stair step to recovery.
Our view is that, while choppy, the commercial real estate market is on a positive mid-term ascent. After the November elections as economic policy clarity improves, new confidence will return and job growth will follow. We would expect to see strengthening tenant demand by year-end and through 2011-2013. In this early and still uncertain stage of the recovery it remains an opportune time for both tenants and investors to lock in long-term values.
Jeffrey M. Finn is the President and CEO of NAI Global, the premier managed network of commercial real estate firms and one of the largest real estate services providers worldwide.
About the author
Scope of Service Experience Jeffrey M. Finn is President and Chief Executive Officer of NAI Global. NAI Global, with over 165 affiliated commercial real estate brokerage firms throughout the world, a web of strategic partnerships and a core of real estate service specialists, is the world's largest managed network of commercial real estate service firms. The NAI system is involved in over $45 billion in real estate transactions annually. Mr. Finn is one of the founders of the company, and over the past decade, has helped lead the organization to its current position of industry prominence. He has been active in marketing, management and strategic planning capacities with NAI. Mr. Finn has represented major accounts including BP Amoco, Air Products & Chemicals, The United States Postal Service, Unisource and WorldCom - MCI. Mr. Finn has also pioneered the company's international growth establishing NAI Canada, NAI Europe, NAI Latin America, and NAI Asia Pacific. In addition to leading the company's Corporate Services Real Estate Group, Mr. Finn has established the company's many technological initiatives, which have earned the company a leadership position in the use of intranets and extranets, to efficiently deliver services. NAI Global's proprietery technology provides real time online information about markets and projects to streamline and systemitize the transaction and portfolio management process. In 2003 and 2004, his efforts were recognized by Realcomm, from which he received their prestigious "Digital Impact" awards for Brokerage Automation and Innovation in the commercial real estate industry. Education B.S. - Boston University School of Management (Cum Laude Graduate) New Jersey Real Estate Brokers License Numerous CoreNet, CCIM, SIOR seminars and courses. Professional Affiliations & Designations NAI Global, Inc. - Board of Directors NAI Cares Foundation - Board of Trustees The Peddie School - Trustee University of Pennsylvania, Wharton Real Estate Center - Founding Member & Past Advisory Board New Jersey Business - 40 under 40 International Council of Shopping Centers (ICSC) National Real Estate Investor - 40 Stars of Tomorrow Commercial Property News - Top Executives to Watch Real Estate Forum - The Forum 100 - Real Estate's Top Companies
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