Commercial real estate market improving despite room for growth

With improved credit quality among small businesses, many say that small business lending is the key to a complete commercial real estate recovery.

There are many positive signs indicating strong growth for commercial real estate companies, but many say small business lending holds the key to greater improvement.

As reported by Investor's Business Daily, investors and developers have been growing more confident in the first quarter of 2013. With promising gross domestic product forecasts in the U.S. for the next two years, falling vacancy rates and rising rents, commercial real estate property prices are rising as investors spar over properties in primary and secondary markets.

According to data from the National Association of Realtors, the multifamily sector has stabilized, while vacancy rates are expected to drop by a few tenths of a percentage point for the office, industrial and retail sectors. Subsequently then, there are moderate rent growth forecasts for those sectors with the most aggressive increase being seen in the retail sector. 

"The recovery in commercial real estate has been steadily growing," said George Ratiu, manager of quantitative and commercial research at the National Association of Realtors. "In terms of the volume of deals, we continue to see improvement. And there has clearly been a strong recovery in prices."

While analysts agree that, in regards to fundamentals, the market is improving, some say that small businesses need access to more capital before the recovery can be considered complete.

The small business factor
Revealed in Direct Capital's Monthly Small Business Lending Index, small business demand for lending continues to be strong when compared with the same time from the previous year. Despite a slight drop in May, there was still a 17 percent increase in demand year-over-year, while overall demand has improved by 37 percent compared to 2012.

"This is the first time this year where we did not see growth in demand over the previous month," said Stephen Lankler, senior vice president at Direct Capital. "But, we're not raising any red flags over it. Demand was on pace with a very strong April and it is still crushing the levels we saw at this time last year. It will be very interesting to see how June plays out, but 37 percent growth in demand year-to-date is still a very encouraging sign.

As reported in The Washington Post, a new survey from Moody's Analytics and Experian revealed improvements to the health of small business credit, citing a 4.5 percent jump in credit quality from last year. With better credit profiles, more small businesses are pursuing small business loans and getting approved.

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