Expert: CRE Outlook Sluggish but Improving

The commercial real estate market continues a slow pace toward recovery, with occupancy rates rising in office properties in most major U.S. cities. The progress is supported by rising employment and restocking of wholesale inventory, according to National Association of Realtors (NAR) Chief Economist Lawrence Yun.

At a recent NAR forum, Yun identified bright spots and challenges within the commercial sector. In the second half of 2010, realtors reported seeing more movement in the commercial market. However, tightened lending standards continue to pose a challenge because national banks are still hesitant to lend, he pointed out.

“Lending from regional banks has become an important source of funds because lending from big banks remains sluggish,” said Yun. He predicts that investment funds through private equity and real estate investment trusts will play a bigger role as the commercial mortgage-backed securities market struggles to recover.

Movement in the commercial property sector hasn't translated into higher prices, though some Class-A properties in sought-after markets like Washington, D.C., and New York City have already started showing price recovery.