Commercial blues

A late March report from Deloitte says tough economic conditions may be a good opportunity for investors looking for good deals in the commercial real estate sector.

While declining values, debt maturity and tight credit access, and stalled construction may continue to plague commercial real estate in the United States for the remainder of 2010, economic indicators point towards the potential for economic recovery this year,” noted the Deloitte report, “Perspectives on Real Estate: Uncovering Opportunity in a Distressed Market.”

The report issued the following as trends for commercial real estate over the next nine to 18 months:
• Declining real estate operations
Driven by job losses and declining consumer spending, vacancies are up and rents are down, leading to decreasing values – especially in office and retail assets.

• Debt maturity and credit access
With an uptick in value drivers for commercial real estate potentially lagging the general economic recovery by three to six months, owners and mortgage holders will likely continue to struggle with debt maturity in 2010 and beyond, with an expected increase in foreclosures and deeds in lieu.

• Stalled construction
There will likely be almost no new construction activity in any asset class in 2010, leading to historic low levels of new construction with excess capacity in almost every asset class.

• Bottom out, then recover
Some real estate asset classes are expected to bottom out and then start to recover in 2010. Rent levels will begin to rise with job growth and increases in consumer spending and gross domestic product (GDP), although this will likely be a slow rise.