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- January 1, 2015: Vol. 2, Number 1

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Commercial Real Estate Hinges on Key Fundamentals

by Calvin Schnure

Investment performance has been strong, but advisers must gauge uncertainties that lie ahead.

Commercial real estate has been a bright spot on the investment horizon, with all property types posting solid gains in earnings and with property prices reaching or exceeding pre-crisis peaks. In terms of investment performance, equity REITs posted a total return of 27.8 percent through the first 11 months of 2014.

Yet there are uncertainties about the path ahead. The overall economy is shifting from the early stages of recovery from the financial crisis, to the middle and later stages of an economic expansion. As the recovery matures, the outlook for commercial real estate will depend on key developments in the fundamentals of supply, demand and valuations.

Supply is clearly on a strong uptrend as new construction gets under way in cities across the country. In terms of the total inflation-adjusted dollars of spending on commercial construction, activity rose

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