Commercial Real Estate Forecast Uncertain

The recent deep economic downturn has had a pronounced impact on commercial real estate sectors, but credit availability is the big unknown that will determine how soon commercial markets recover, according to the National Association of Realtors®.

NAR’s chief economist said some initial movements earlier this week in commercial mortgage-backed securities are encouraging. “The first commercial mortgage bond deal in over a year shows the Federal Reserve’s efforts to sell securities through the TALF program can be fruitful, but the level of activity is well below what is required to resuscitate the commercial market. Credit availability needs to significantly rebound for any hope of a meaningful commercial recovery in 2010.”

The Commercial Leading Indicator for Brokerage Activity1 rose 0.9 percent to an index of 102.4 in the third quarter from 101.5 in the second quarter, but is 11.1 percent below a reading of 115.3 in the third quarter of 2008. The index in the second quarter was at the lowest level since the first quarter of 1994; NAR’s track of the commercial leading indicator dates back to 1990.

NAR’s economist said the modest index recovery follows steep declines in the past several quarters. “Gains in industrial production, durable goods shipments and retail sales; a rebound in the NAREIT price index; and improving figures on first-time unemployment claims were stabilizing factors,” he said. “Negative impacts include falling private sector income and fewer jobs involving commercial real estate. The office and industrial markets are the sectors most negatively impacted by the economic downturn.”

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