Commercial recovery should pick up through 2014

Commercial real estate conditions may continue to strengthen.

Commercial property managers may see an improvement in the commercial real estate market in the next couple years, and this could be similar to the gains seen in the residential market.

There are a multitude of government spending adjustments that could affect the market, while interest rates are slowly climbing, but a report from TD Bank noted the commercial market may see a positive upcoming period. This is partly due to an expected increase in economic expansion, as the figure should rise to as much as 1.8 percent this year, before jumping to nearly 3 percent in 2014.

Job growth should benefit significantly from this economic improvement, with more than 4.7 million jobs potentially gained by the end of 2014, the report noted. One of the main benefits of this growth is the likelihood that commercial properties will see a decline in vacancy rates in the coming months.

"The key difference between the initial recovery in commercial real estate and future growth will be the contribution of interest rates," said James Marple, senior economist at TD, and the author of the study. "As interest rates rise, the spread between commercial real estate yields and government Treasuries will narrow. Prospects for price growth will then depend on improving economic fundamentals."

With the impending housing market recovery, there may be a notable improvement in retail, the report said. This is due to the close relationship each has with market changes. Another aspect of the commercial market that may see some gains is the industrial sector. This is due to economic expansion helping improve the export situation.

Commercial mortgage debt rises to end 2012
While many aspects of the commercial real estate market may improve in the next two years, progress may already be underway. A significant amount of commercial investors may be more involved in the market, as the level of outstanding mortgage debt for commercial properties jumped during the final quarter of 2012.

Overall mortgage debt rose more than $21 billion during the fourth quarter compared to the previous three-month period, according to a report from the Mortgage Bankers Association. This was 0.9 percent improved quarter-over-quarter. The level of debt rose nearly $30 million, or 1.2 percent compared to the same quarter in 2011. Multifamily debt rose nearly 1.5 percent compared to the third quarter's figure, as well as more than 4 percent from the same quarter in 2011.

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