Avison Young: Recovery Imminent, but Hurdles Lie Ahead

Chairman & CEO Mark Rose noted in the firm's 2010 annual review and 2011 forecast that without improved confidence and growth in employment, consumer spending, industrial production and GDP, forward motion will prove a struggle.

Without a significant uptick in major economic indicators, post-recession recovery will be a struggle. That’s according to Avison Young, whose 2010 annual review and 2011 forecast was released earlier this year.

Chairman & CEO Mark Rose wrote in the report: “The bottom line is this: Without improved confidence and growth in employment, consumer spending, industrial production and GDP, we will have a difficult time recovering.” That said, he added, the capital markets were given a boost by cap rate compression driven by low interest rates, the lack of alternative investments, large amounts of capital sitting on the sidelines and the under-allocation of pension funds in real estate. Young wrote that while those factors allowed public real estate investment trusts to recover some share price, investment velocity and transaction pipelines to build, providing recoveries of 30 to 40 percent in the last year, asset performance was uneven throughout North America.

The risk is not just limited to the Americas. With the fear of an implosion in the European banking system as well as a slowdown in China, there is a universal uneasiness along the road to recovery. Still, Rose expects fundamentals to turn up by the fourth quarter of 2011, confirming “the positive foothold established by the always forward-looking and more optimistic capital markets.”

The firm advises patience, not panic, when it comes to the flow of capital to real estate. “Interest rates are low, values are compelling, distressed selling is almost non-existent and trophy assets are being aggressively fought over as they become available,” Young wrote. “There is capital and it flows to what ‘can be bought’ rather than pushing the markets out of equilibrium and forcing cap rates lower and values higher.”