Global commercial real estate (CRE) is gradually improving despite mounting concerns over sovereign debt, the pace of future economic expansion and a weak housing recovery, according to Deloitte's ‘Real Estate Outlook: Top Ten Issues in 2012’ report.
‘Commercial real estate continues along a bumpy path to recovery, with strengths outnumbering weaknesses,’ says said Bob O'Brien, vice chairman and real estate sector leader at Deloitte LLP. ‘Foreign investment, absorption and lending have provided a solid foundation for the upward momentum and deal flow we've seen over the past 12 months. However, concerns remain – the residential market is challenged and the overall economy faces uncertainty. Until the majority of the challenges are abated, the industry should proceed with caution and a measured optimism.’
According to the report, global CRE is benefitting from a partial rebound in manufacturing activity, increased business spending and higher capital flows, resulting in an increase in transaction volumes for seven consecutive quarters. In the U.S., foreign investments are helping revive the transaction market.
Deloitte also noted that real estate investment trust acquisition activity and an increase in distressed deals further aided the recovery of the CRE sector. Distressed property transactions were rising due to improved financing conditions and favorable pricing convergence.
The report also found that increased investor demand helped to drive CRE lending recovery, resulting in higher loan sales and financing options. As a result, lenders' balance sheets are stronger due to loan modifications and extensions, and fewer write-offs spurred by the ‘amend and extend’ strategy.Â However, Deloitte warns that this strategy is gradually losing steam as lenders focus on permanent resolution of troubled loans amid a pickup in CRE investment activity.
The full report is available online.