After struggling through 15-18 months of a cyclical bottoming out, the commercial real estate market is finally showing signs of improvement. However, this improvement will not be a near-term phenomenon. It will be a lagged event that will depend on a continuation of the fledgling economic recovery. In this environment, capital flows will remain strong, with public and private investors seeking product. Similarly, the commercial mortgage market will remain strong, with investors aggressively competing for product. At this stage of the cycle, this competition will be healthy in the sense that it will not trigger a surge in new construction. Rather, investors and lenders are expected to keep a wary eye on the overall economic environment, and remain cognizant of the fact that the real estate market is plagued by widespread over-capacity. Similarly, most observers realize the real estate market will not be the engine of growth, but will respond to growth as it ripples over to the spatial market. As such, real estate fundamentals should improve gradually, bringing pros- pects for higher returns that will help the asset class compete for capital on par with other asset classes. In this environment, once the real estate market catches on to the economic recovery train, it is likely to remain fully on board, carving out an enduring niche among investors and other market participants.
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