On Real Estate: Outlook positive for commercial real estate

By Jim Hagerty
Staff Writer

While some of 2011 will resemble much of 2010 on the commercial real estate front, several indicators are pointing to a positive outlook this year.

Unemployment rates remain high, and the residential market is slowly correcting itself. Positive Treasury yields, increased consumer spending and moderate-to-low lending rates, however, are expected to increase, resulting in substantial growth in commercial real estate by the end of the year, economists say.

“With the exception of housing and unemployment, most of the signals I’m seeing are positive, which does suggest pretty good growth,” Ross Moore from Colliers International said.

According to Moore, Treasury yields are climbing, ending a year-long decline. The 10-year yield rose by as much as 3.5 percent last month, significantly higher than the 16-month low of 2.4 percent reported in October. Still, Moore says, unemployment remains the only sticking point in charting real growth for commercial investors.

Nationally, about 50,000 jobs were created last fall in the private sector, yet didn’t put a dent in the 9.8 percent jobless rate. Since December 2009, approximately 86,000 jobs per month have been created across the board. This seems to indicate that by year-end, employment improvements should reach the neighborhood of 2 million and show increases in the apartment sector and start closing the gap on commercial and industrial property vacancies.

Lending rates are also showing long-term stability, which are expected to spark consumer spending. Real estate loans are also priced right, representing one of the strongest outlooks for commercial lending in more than 20 years. Distressed, yet viable, properties are increasing across the country, drawing developers to an abundance of urban development projects with solid ROI promise.

“We’ve got an economy that’s going to post pretty good growth but very low inflation,” Moore said. “That is the ultimate sweet spot for real estate, because low inflation implies low borrowing rates and a growing economy.”

From the Jan. 5-11, 2011 issue

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