The Top Ten Issues Facing Commercial Real Estate in 2011
The top ten issues facing commercial real estate for 2011, according to Deloitte.
10. Regulation: Direct and indirect impact of regulation on CRE
Recent healthcare legislation will most likely boost commercial real estate demand, but financial regulations could make it challenging for commercial real estate firms to access necessary capital in the future.
9. Capital Markets: Lending stabilizes; demand subdued
Stable bank lending and the renewal of CMBS are critical developments for the industry, but the modest level of issuance will not help many CRE borrowers obtain financing, and issuance is expected to be focused primarily on high-quality, stabilized assets. Deleveraging continues, and despite the potential emergence of alternatives, new CRE debt origination is expected to remain subdued until the high level of maturities is reduced to a more sustainable level.
• Office fundamentals have deteriorated significantly over the past two years, but there are some signs that a slow recovery may begin as early as 2011.
• The retail space continues to face substantial demand-side challenges: a decline in retail sales following high unemployment, low consumer confidence levels, and reduced discretionary spending.
• The industrial sector is experiencing a modest increase in leasing activity as manufacturers replenish depleted inventory levels.
• Demand for lodging continues to recover due to improved business and leisure travel.
2. Current State of CRE: Prevailing uncertainty, as downturn defies expectations
The current cycle is not following historic tendencies because it was fueled more by overleveraging than overbuilding, creating a dynamic involving flexible lenders, stubborn owners, and expectant investors. CRE fundamentals and capital markets metrics indicate that the worst may be over, with sharp declines showing signs of leveling off.
1. Globalization: Positive signs for global CRE
Foreign acquisitions are a key component to recovery for the U.S. CRE market, which will benefit from pent - up demand from foreign investors seeking to diversify. As the global market begins to recover, the Asia Pacific region is expected to be a catalyst for growth, both as a destination and a source of investment into the U.S. market, while more traditional investors from Australia and Germany reduced allocations due to trouble in their home markets.
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