After avoiding a full-fledged catastrophe when the rest of the economy and residential housing went bust, the commercial real estate sector has, for the most part, made a pretty astounding and rapid recovery. Too astounding, fear analysts, who warn that “commercial real estate [may have] taken to the comeback trail…too quickly and could end up crashing again”. This is one of the fastest, if not the fastest, recovery in commercial real estate history, says LaSalle global strategist Jacques Gordon. He believes that given the severity of the economic recession as a whole, “it should have taken more time than usual, not less, for the real estate market to rebound.” He cites high unemployment and quickly appreciating office properties as an example of the unrealistic recovery, saying that there is no reason for these two trends to exist simultaneously. Another analyst, managing director for Northwestern Investment Management Company Gregory Walz, calls the market “too frothy, too quickly.”
However, not everyone agrees that the swift improvement is a problem. In fact, accounting firm Deloitte recently released a report indicating that the markets are being “fuelled by the availability of capital, low prices, loan restructurings and alternative financing methods” and that these factors would pull the commercial market through today’s perilous waters. Deloitte believes that the commercial markets are stabilizing, in part because “it was commercial real estate that felt the first impact of the downturn.” Deloitte analysts did emphasize that risks associated with refinancing remain high and that this issue will play a major role in the ultimate stability of a commercial recovery.
Do you think that the commercial market is making a comeback too fast?