The commercial real estate industry is now expected to linger in recession through 2011, with recovery beginning in 2012, according to a recent survey released by Price Waterhouse Cooper. Rather than affecting all asset classes at once, the recovery will take hold in different segments at varying times. This most likely relates to the level of distress within each segment, as more distressed assets will take longer to recover.
First through the gate is predicted to be the multifamily property sector, which will begin to see recovery in 2010, with progress continuing through 2012. Next, the industrial and office real estate sectors will see recovery emerge in 2011 but not truly take hold until 2012. Finally, retail properties, dragging its feet through the door, will observe “slight recovery” in 2012. These predictions are precisely what one would expect to see in the market. As people regain their footing, shelter will undoubtedly be first priority, followed by office space as more people go back to work and finally retail as people begin to spend again.
Interestingly enough, 2012, the year commercial real estate is forecasted to see an industry wide recovery, is also the year $153 billion of CMBS loans come due. This creates a seemingly unlikely coincidence, as defaults are projected to be prevalent amongst those maturing loans. In-fact, according to Deutsche Bank, $100 billion of those loans (around 65%) will default, creating a crisis.
How a recovery and crisis can simultaneously exist within the same industry is a little hard to fathom but there is a chance the market will see this as an opportunity rather than a threat. If the industry truly is on stable footing by 2012, perhaps the appetites of buyers will be large enough to absorb those defaulted properties. If not, the year earmarked for recovery could be marred by a financial tempest.
Calkain Companies, Inc. is a national, boutique commercial real estate firm, focusing on net lease investments, that provides brokerage and consulting services for both private and institutional clientele.