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Consumer Sentiment Weighs on REITs

07/31/2012 | By Matthew Bechard

Consumer sentiment continues to be dampened by discouraging financial news, according to Sam Chandan, president and chief economist with Chandan Economics.

Chandan spoke about the state of the economy and its impact on commercial real estate in a video interview with REIT.com in New York at REITWeek 2012: NAREIT's Investor Forum.

"What we do know is that as long as consumers are seeing that data, as long as that is helping to shape their perceptions around the security of the labor market, the security of their own jobs and that recurring paycheck, it's really weighing on consumer sentiment," he said. "And that's one of the real dangers when we're looking at where the economy is going now. If consumers aren't helping to propel the economy forward, in as much as they still are 70 percent of overall economic activity, it's going to be very difficult for us to sustain current levels of growth."

Looking ahead to the second half of 2012, Chandain said consumers' anxiety will continue to be the dominant story in the commercial real estate industry.

"For right now, people are nervous," he said. "Those dollars are coming into the United States. That nervousness and the weaker economics mean that people are once again very focused on the core markets and gateway markets where liquidity is very strong."

The fortress markets such as New York and San Francisco benefit from having a degree of liquidity that can't be found in secondary markets due to a diversity of investors and lenders. That means low-cost capital should be available in those core markets.

Chandan also addressed the issue of commercial real estate loan defaults. He noted that delinquency rates for the loans are approaching their historic peaks.