When you look at the commercial real estate industry today, you see that we are in a far better place than we were a year ago, and certainly even six months ago. Last year at this time, the market was gripped in fear, and just six months ago there was caution in the air, with many questions about the fate of the economy and how banks would deal with the massive overhang of distressed debt.

When you look back at 2009, you will see a year of record lows. Yet it is a tale of two different years, as the first half of 2009 represented the absolute bottom, and the second half being the beginning of the recovery. Starting in July, we saw an uptick in transaction activity here in the U.S. And today, with a strong recovery in Asia, led by a continued boom in China, and a rally in London beginning to pull the European market out of its malaise, the U.S. is showing marked improvement in activity. Values are bottoming, activity is picking up and optimism is returning to the market.

Though we are looking recovery in the face, the devastation left behind in the wake of the credit crisis cannot be overlooked. Millions of square feet remain vacant across markets. Development projects have either stalled or are awaiting funding. We have over $1 trillion in underwater debt that is continuing to look for a new home as it comes due over the next three years. In some ways, due to the government’s largesse, we have avoided a vast pool of distressed commercial properties swamping the market. Yet we expect to see a lot of product come to market at clearing prices, and bank owners seeking partners who will help get their property managed, taken care of and taken off the books. Even with the pickup we are starting to see in leasing activity, we are not seeing a fundamental turn yet. Rental rates are declining, and we expect the decline to continue. Vacancy rates continue to go up, and we don’t expect that to change for the next 12-18 months. It may be three to five years before the market truly returns to a position of strength.

Looking forward, global economies are beginning to grow again and massive amounts of capital have been amassed to focus on the property sector. In that window between when the recovery begins and when the market returns to a position of dominance, there is a unique window for both corporate users and long term investors to tap the tremendous investment and expansion opportunities abound around the globe.

-Jeff Finn

Jeffrey M. Finn is the President and CEO of NAI Global.
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