The main takeaway from the report, which was compiled through interviews with 875 industry leaders, is that while 2011 will mark the beginning of the recovery in the commercial real estate, by and large we're entering an "era of less." We're not returning to the go-go days that marked the run-up to 2007 any time soon, if ever. We're looking at an industry that will be smaller than it was and generate lower returns, even on properties that are generating a healthy cash flow. And you can forget about. Respondents think we're still three to five years away from a period where widespread development will make sense. For retail real estate, the wait may be even longer.
While prospects have improved for all markets and property sectors from last year's report, it's hardly a robust environment. If you have cash, you're sitting pretty. Debt is more available than it was, but lenders primarily are only comfortable lending long on class-A properties in top-tier markets. Owners of assets that are generating cash flow in need of refinancing should fare OK. But we may be near the end of the "pretend and extend" moment that has gripped the sector in recent years. There will be more workouts and realization of losses.
There is also a realization among respondents that solving commercial real estate's problems is not something entirely within the industry's control. There is uncertainty about what kind of policies will come out of Washington. Some believe there should be more support for the industry. Others think that too much government intervention is the problem and that until Washington gets out of the way, things cannot move forward.
In addition, everybody knows there needs to be more jobs created to sustain commercial real estate, but nobody at all has a clear view of where those jobs are going to come from. It's worth recreating the Powerpoint slide from today's presentation in its entirety:
It's All About Jobs
The Top 10 Markets, according to respondents:
The outlook by property sector: