LOS ANGELES-Cautious optimism, that hard-working phrase that is always much in evidence at the start of a recovery, is making a comeback. The gloomy mood that permeated the commercial real estate industry has given way to some more positive outlooks, albeit with realistic reservations, according to a quarterly survey by Lee & Associates' Investment Services Group and the Allen Matkins/UCLA Anderson Forecast.

Lee's survey asked thousands of its clients nationwide eight key questions facing private real estate investors and found that, among other things, "Most think we are starting to see commercial real estate strengthen." The Allen Matkins/UCLA Anderson Forecast, covering seven major markets throughout California, found “a distant glow of light at the end of the tunnel.”

Lee's survey included high-net-worth individuals, partnerships and other groups specializing in commercial real estate deals valued in the range of $2 million to $20 million. "At last there is some optimism in the commercial real estate market," Lee says in its summary of the survey results. Last quarter, 82% of the respondents did not think the market had started to strengthen yet, but that number declined to 63% in the latest survey. "For the first time in two years, over one-half of the respondents believe the market will be strengthening in less than 18 months. About one-fourth were still pessimistic that we still have over 24 months before the market shows signs of getting stronger," Lee's survey summary states.

According to Mark Larson, vice chairman of Lee's Investment Services Group, the survey indicates "some thawing on the investor front, which seems to be evident with Lee offices reporting an increase in deal activity." However, "There still remains a mood of caution among investors,” Larson said.

In addition to indicating that most of those surveyed think commercial real estate is beginning to strengthen, other general conclusions of the survey were: Sellers still need to be more realistic, but there are buyers who are "ready, willing, anxious and have capital;" lenders have to start making loans; government involvement has been too slow to assist in lending and job creation; the commercial real estate market will become the robust economic generator we have seen in the past; as institutions are on the sidelines for the most part, now is the best time for private investors to buy.

The Lee & Associates survey asked the participants how long it has been since they last bought a commercial property, what was the value of the transaction, how the deal was financed, what type of investments they favor today, how long until commercial markets begin to strengthen, have sellers become more or less realistic in the past three months, what they think will stimulate sales activity and what product type they favor.

The Allen Matkins/UCLA Anderson Forecast Commercial Real Estate Survey polls a panel of California real estate professionals in the office space, industrial space and investment markets, asking them to forecast how they believe those markets will be performing three years from now. The latest results show that the panel believes that rents occupancies will both be higher three years hence.

Jerry Nickelsburg, UCLA Anderson Forecast senior economist and author of the survey results report, says it shows that, “After 18 months of pessimism about office and industrial markets, we are now seeing indications that, after the markets hit bottom later in this year or early next year, they will follow the pattern of increased non-residential construction coming two to three years after the end of the recession," rather than the pattern of standing still for several years. The survey includes the office and industrial markets in Los Angeles, the Inland Empire, the East Bay, Silicon Valley, San Francisco, Orange County and San Diego.

The report says that the optimism is somewhat greater in Los Angeles and Orange County, "possibly reflecting the current strength in manufacturing in the early days of this post-recession expansion.” It notes that "Consumption spending is growing at a slow pace and growth in consumption is the key ingredient for an improvement in warehouse usage."