The Long Road Back for CRE

by CoyDavidson on August 9, 2011

Recovery in the CRE Market

I didn’t really have a doubt that Standard & Poor’s decision to downgrade America’s credit rating on Friday would bring a flurry of articles on what impact this event would have on the commercial real estate market.

Here are three of the more prominent ones:

It’s All About Jobs

I think real estate economist, Sam Chandan best characterized the situation, “Labor market trends are still falling woefully short of real estate investment and credit trends, with the result that pricing improvements for lower-quality properties continue to lag trends for top-tier assets. Until job growth accelerates, we should not expect that spillovers from the top of the market will suffice as sustainable drivers of momentum for broader investment.”

Too Squeamish to Pull the Trigger

Chris Macke, Senior Real Estate Strategist with CoStar Group pointed out in his Forbes column that, “the larger impact for commercial real estate could be on the demand side, at least in the near term.”

Despite the fact Corporate America is sitting on record cash hoards and corporate earnings are generally solid they have been woefully squeamish to pull the trigger on hiring in a significant way. The primary headwind is uncertainty in not only future economic conditions but also the future tax and regulatory environment.

Get Ready for the Election Excuse

My biggest fear beyond the events of the last week and the additional uncertainty it creates is the fact that we edge closer to an election year. This will ultimately promote even more of a “wait and see” attitude from major corporations and a pessimistic small business community. Washington has earned the primary blame for the U.S. credit downgrade. The fact that an even cloudier political landscape is added to the equation with an election year looming will only exasperate this mindset.

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