While Standard & Poor’s downgrade of the U.S. credit rating turned much of the financial industry on its head, and has contributed to two days of major stock market movement, CB Richard Ellis analysts concluded that commercial real estate will remain relatively stable, in a report released today titled “U.S. Deficits, Debt and Commercial Real Estate.”
The six-page report is packed with graphs illustrating the country’s unsustainable debt situation and argues that major adjustments in spending habits and the U.S. economy are needed before progress is made (see report below). In the short run that could drive prices down as investors get more conservative on future cash flows. However, that would entice investors with higher risk tolerance — looking for larger profits — into the market.
Commercial real estate fundamentals, the report says, change slowly, but with reduced demand for tenant expansion or relocation, new developments might be slower to the market, thereby keeping existing commercial assets in demand.
Though the improving market of the first half of this year may reverse course, the report says, “commercial real estate will not fare as poorly [as stocks] because it remains a preferred asset class, with a well-diversified, multi-asset institutional portfolio.” — Adam Fusfeld
CBRE’s Americas ViewPoint August 9 2011