Commercial real estate market faces many issues in 2013

CRE lending could be a problem in 2013.

Although the commercial real estate market has improved this year, it still faces many obstacles in 2013.

According to the Deloitte Commercial Real Estate Outlook, one of the problems that market will face is macroeconomic fundamentals. This issue is present in large part due to economic issues in the Europe, as there is an 89 percent correlation between U.S. and Eurozone economic growth in the past 10 years.

Additionally, economic issues in the U.S. could negatively impact commercial real estate, as a lack of new business formation and labor market structural problems remain present. GDP growth has also remained low, and is expected to average 2.2 percent from 2012 to 2016.

Another major issue that market will face is CRE fundamentals. With strict underwriting conditions and a low demand for most property types, market activity growth could remain slow. However, landlords and property management companies could see improved business as rent and vacancy levels have been stabilizing for all property types.

CRE lending could also pose a problem, according to the report, as weak CMBS performance, high debt maturities and concerns about strict provisions under the Dodd-Frank Act and Basel III could remain an issue. Lending standards are expected to ease a bit in the new year, though, which could help activity increase slightly.

'Fiscal cliff' could pose problems for commercial real estate
In addition to the issues outlined in Deloitte's report, the impending "fiscal cliff" could also be a threat to the commercial real estate recovery.

"Going over the fiscal cliff, and continuing to free-fall is an unlikely scenario, but from a real estate perspective, it's potentially a devastating scenario," said Cassidy Turley chief economist Kevin Thorpe. "Washington, D.C., has an obvious bulls-eye on its back, but our study finds that the majority of metros – 23 out of the 30 metros tracked – will experience a recession in 2013 if the tax hikes and spending cuts are not scaled back significantly."

With government contractors being major tenants in many commercial real estate markets, a cut in spending that could result from the fiscal cliff could have damaging results. The top 100 government contractors occupy 208 million square feet of office space in the United States, which could be reduced by 18.7 million square feet if the country falls off the fiscal cliff.

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