Is It Groundhog Day in Florida?

MIAMI-The European debt crisis. Social unrest in the Middle East. Legislative gridlock in the US. Questions about the impact and timing of GSE reform. The availability of credit, or lack thereof. The continued housing foreclosures. Slow job growth.

2013 looks a lot like 2012. Some are calling it Groundhog Day.

“We have the same global challenges as last year, but with a few more industry specifics,” says Dennis Bernard, a partner at Strategic Alliance Mortgage and founder and president of the Bernard Financial Group in Southfield, MI. “In the hunt for yield and return, we have a plethora of lenders seeking to place mortgages while still having a limited amount of financeable commercial real estate. Will this cause a quickening of overheated lending practices that have haunted us in the past? How strange is it to actually wonder about that after what we have just been through?”

Groundhog Day may not be the worst fate, though. Driven by a better-than-expected surge in year-end transactions, sales of significant commercial properties totaled $283.2 billion in 2012, representing a 24% increase over 2011, according to Real Capital Analytics. Apartments were once again the darling, with trade volume rising 47%. The office and retail sectors posted 20% transaction growth while industrial and hotel remained largely flat against 2011. Meanwhile, prices are within 20% of peak levels, according to RCA, and are nearing, or already have surpassed, peak levels, particularly in the apartment sector. And cap rates are generally compressing.

Compared to the Great Recession, a Groundhog Day may be acceptable. There are X factors, but there is also a greater consensus about the pace and depth of the commercial recovery in 2013. There's more certainty. Development opportunities are increasing even as distressed asset investments are decreasing. And global capital markets, although rife with unknowns, have thawed and are feeding the river of debt once again.

Economists generally expect the slow current pace of economic growth to improve moderately starting in 2014, but persistent deleveraging and macro risks—including the European debt crisis and the US fiscal cliff(s)—will likely continue to constrain growth from matching the pace of past economic expansions.

“A key real estate implication of the macro environment has been risk aversion, manifested by investors who've tilted strongly toward the safety of gateway markets and best-of-core assets,” says Timothy Bellman, head of global research for New York City-based Invesco. “These market segments were the first to experience meaningful value recovery and cap rate compression.”

No matter what angle you take, commercial real estate has witnessed a recovery from the Great Recession days of not so long ago. The economy is growing, albeit slowly. Rents are generally rising—more quickly in some markets than others. And leasing spreads are starting to hit double digits for top operators.

“For retailers, the issue is becoming 'How do we grow from this point?'” says Glenn Cohen, CFO of Kimco Realty in New Hyde Park, NY. “The increase in tax rates and the expiration of the payroll tax holiday may throw a bit of a wrench into the progress that's been made, and I think that's why the Fed is being somewhat cautious in its bond buying program to help keep rates low and to ensure that the recovery, which seems to have gained traction, continues for the long haul.”

Developers, investors and lenders have similar perspectives, but what about architects and engineers? Joe Derhake, president of Partner Engineering and Science in Los Angeles, is optimistic. He says the construction industry seems to be making a comeback, architectural billings are up, homebuilders are active and there's more demand for construction monitoring services.

“We are engineers, not economists, but our engineering and environmental due diligence industry is a unique barometer of the commercial real estate industry because our services are needed on most CRE transactions or financing,” Derhake says. “The due diligence industry as a whole has seen substantial growth throughout 2012. We plan to hire 100 technical staff this year, clearly betting on growth in 2013.”