Strong Fundamentals Keep CRE Experts Bullish on Investments

While the last few weeks have been rocky for financial markets, two industry experts feel the CRE space is still well-poised for growth in the remaining months of 2011.

The last few weeks have been, to put it mildly, tumultuous on the financial side. When markets opened last week, the first business day after Standard & Poor’s Corp.’s ratings downgrade and just a few days after the passing of the Budget Control Act of 2011, the Dow took a huge hit. By Tuesday, they were back up. Wednesday, down. Thursday, up. The markets’ close on Thursday, Aug. 11, proved a curious first for the Dow, which hadn’t ever had four 400-point swings in a row before. Some have even been mouthing the words “double-dip recession.”

So what’s an investor, specifically one in commercial real estate, to do?

“To quote Paul Samuelson, the Nobel-winning economist, the stock market has predicted nine of the last five recessions,” Ken McCarthy, senior economist & senior managing director of research at Cushman & Wakefield Inc., told Commercial Property Executive. A potential second recession is “a political as much as an economic event. Our economy continues to grow, and we’re not seeing excesses. While things slowed down from May of this year through July, there’s little to suggest it’s going to slow down to recession.”

And that sentiment seems to be shared within the industry, despite the idea reaching mainstream discussion with articles in USA Today. According to an Aug. 14 article in that newspaper, “the chances of the economy slipping into another recession have risen significantly, and forecasts for economic growth and job gains over the next year have been substantially downsized. … The 39 economists polled Aug. 3-11 put the chance of another downturn at 30 percent — twice as high as three months ago, according to their median estimates.” But such doom-and-gloom predictions don’t seem to hold water with experts in the CRE field.

“Overall, the recovery in the U.S. has proven exceptionally strong and momentum is still building across all sectors, while investment activity is broadening both geographically and in terms of asset quality,” said Jay Koster, president of capital markets in the Americas for Jones Lang LaSalle Inc. “Add to this an improvement in debt-market liquidity and still-attractive spreads, and the second half will be even stronger than the first six months of this year.”

McCarthy feels the same way, but has a realistic outlook.

“We’re seeing unemployment claims decline back to 400,000, which is a good sign,” he said. “Automobile sales have increased, as well. There’s nervousness and uncertainty in regards to the budget deficit, despite an agreement. There’s still not a lot of clarity on the situation in Europe. These things are making investors cautious. But the fundamentals are still strong.”