For those who were expecting some market relief by now, there is not a great deal of positive prognosis to provide. Despite the slow rise in the stock market since its fall, the market continues to suffer from mediocre progress with its continuous ups and downs. There is still much change needed in the global economy to sustain the stock market growth we need to realize a full and effective recovery of other markets, including commercial real estate. But I would like to say that we are now bouncing off the bottom with an ability to understand where market corrections have settled in terms of value, cap rates, absorption and development, which is all but non-existent. With historic high unemployment and the uncertainty of what new pothole we might hit while we are finding our way out, it may still be a rough year or more ahead of us. Much depends on how the commercial lending industry plays out the myriad transactions that still linger in their portfolios. The penalties for a defer-and-deny or an extend-and-pretend philosophy may not yet to been fully realized.
On a positive note, if consumer confidence continues to eek up, while other economic indicators remain relatively positive, we can hope for improvement in the markets – both financial and real estate. What we need is for more positive factors to be realized on a consistent basis so that we can turn to better times ahead and depart from those recently past. Not that they will soon be forgotten, and hopefully with some lessons learned, but it is not a moment too soon for us to be able to sustain the momentum of transactions and bolster rents. Without stability in rental markets and absorption, as well as lending terms that are palatable, we will not recover any time soon.
Today you can still find rents at 40 to 60 percent of what the highs were 2 years ago. Yet sale prices, though some have fallen, are still holding strong given there is little, if any, new supply being added to the pipeline. And although some costs of construction have come down, many material costs have not. Therefore once labor is back in demand, prices will raise again sharply.
— Randy Podolsky is managing principal with Riverwoods, Illinois-based Podolsky Northstar CORFAC International.