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Commercial real estate beginning to generate momentum for recovery: Deloitte report


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16 December 2010: Following sharp declines and painful deleveraging in the wake of financial and economic turmoil, commercial real estate (CRE) in the United States is showing signs that the deterioration of industry transactions and fundamentals has begun to plateau, and that early stages of recovery may be imminent, according to a Deloitte report.

The report, the 12th in Deloitte’s series on critical issues impacting CRE, takes a close look at market trends and developments, with a focus on the outlook for recovery.

Alex Collinson, Deloitte Real Estate partner in Australia said the report’s findings reflect the local market, but unlike the US scenario, Australia has had a shallower and shorter dip with lower vacancies, and there are signs that the rental recovery will be quicker than the United States.

“Australia and the Asia Pacific region are leading the global real estate investment recovery. REITs are going back to basics,” Mr Collinson said.

“While not at 2007 levels, transactional activity is returning. Amend and extend is how debt is now being treated. Debt maturities have resulted and ‘haves and have nots’ in terms of access to debt.”

As far as the United States’ CRE potential, Mr Collinson said there is scope for inbound investment into the US if the recovery gathers pace but the lessons of the previous investment cycle need to be learned.

“It’s a bit of a wait-and-see approach at the moment. The signs are encouraging. However, we require further indicators in the next 6 months in order to establish whether the momentum gathers pace or peters out,” Mr Collinson said.

The Deloitte report warns that despite some encouraging activity in the US, impediments such as looming debt maturities and high unemployment rates are causing uncertainty, potentially dimming prospects of a robust, short-term rebound in the CRE space.

Specifically, the report outlines the following 10 issues affecting commercial real estate in 2011:

  • Current state of CRE: Prevailing uncertainty, as downturn defies expectations
  • Lender lenience: Impact of “amend and extend"
  • Looming debt: High maturities remain a challenge
  • Deal flow: Transactions reviving modestly, driven by distress
  • Economy: Trajectory of economic fundamentals remains uncertain
  • Industry fundamentals: CRE metrics remain weak; some signs of improvement
  • REITs: REIT rebound continues, but at a slower pace
  • Capital markets: New issuance from banks and CMBS remains subdued
  • Regulation: Direct and indirect impact of regulation on CRE
  • Globalization: Positive signs for global CRE.

For a copy of ‘Commercial Real Estate Outlook: Top ten issues in 2011 (Generating momentum for recovery)’, go to www.deloitte.com.au.

Last Updated: 

Contacts

Name:
Petros Kosmopoulos
Company:
Deloitte Australia
Job Title:
Corporate Affairs & Communications
Phone:
Tel: +61 3 9671 6093, Mobile: +61 4 0700 0926
Email
pkosmopoulos@deloitte.com.au
Name:
Alex Collinson
Company:
Deloitte Australia
Job Title:
National Leader, Construction
Phone:
Tel: +61 2 9322 7921
Email
acollinson@deloitte.com.au

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