According to a blog article by Wall Street Journal’s A.D Pruitt, published August 18, 2011, descending stock markets may hinder recovery in Commercial real estate.
The stock market is tumbling again, but will trouble in the wider economy derail the recovery in commercial real estate?
There are reasons to worry. As The Journal wrote this week, commercial real estate could be losing its appeal as a safe-haven investment given the market turmoil and constrained bank financing. The stock market performance of real estate investment trusts, while still healthy, is down from a two-year hot streak.
An outlook report released today by Deloitte LLP ticks off the five issues to watch in commercial real estate given the sluggish economy.
“The uncertainty impacting the overall economy and other industries has had less of an effect on the real estate industry,” Bob O’Brien, vice chairman and real estate sector leader at Deloitte, said in a new report. “At the same time, the wall of debt maturity that will come due between now and 2015 still may present short and longer term challenges for the remainder of this year and into 2012.”
The report also said that subdued consumer spending, reduced federal spending, slow job growth and a weak housing market threaten to delay the recovery. After hitting a bottom in March 2009, commercial real estate has been on a steady ascent because investors were confident a brutal downturn was behind the market and that landlords would be able to start raising rents and occupancy rates amid an economic recovery.
Deloitte expects real estate investment trusts, which own about 10% of the nation’s commercial properties, to dominate commercial property deals this year particularly in the distressed market. For most of the past year, investors snapped up the stocks of REITs, thought to be immune from the turmoil in Europe’s debt crisis and unrest in the Middle East. Investors also were attracted to REITS for their high yields and the prospect that rising employment would lift rents and occupancy for office complexes, apartment buildings and hotels.
