WASHINGTON — The commercial real estate market continues a slow pace toward recovery with occupancy rates rising in the office and industrial properties in most major cities supported by rising employment and restocking of wholesale inventory, according to National Association of Realtors® (NAR) Chief Economist Lawrence Yun.
Yun, speaking at the Economics Issues and Commercial Business Trends forum, identified bright spots and challenges within the commercial sector.
In the second half of 2010, realtors reported seeing more movement in the commercial market, says Yun. This movement is occurring as property prices have fallen, providing attractive returns on investment. However, tightening lending standards continue to pose a challenge because national banks are still hesitant to lend, he adds.
“Lending from regional banks has become an important source of funds,” Yun says. “Investment funds through private equity and real estate investment trusts will play a bigger role as the commercial mortgage-backed securities market struggles to recover.”
However, movement in the commercial sector hasn’t translated into increased prices as the properties values are being dragged by the existence of distressed properties, Yun believes. He says it could be several years before commercial property prices rise in any meaningful way, though some prime class-A properties in sought-after markets like Washington and New York have already started showing price recovery.
During the session, commercial broker David Murphy of CB Richard Ellis in Orlando, Fla., joined Yun. Murphy echoed Yun’s sentiments about the outlook for commercial real estate.
“We are in the early months of a cyclical recovery,” Murphy notes. “Leasing velocity is improving, investment sales are expected to continue at higher-than-normal rates, and leasing growth rates should continue to improve.”
The NAR is a trade association representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.