One of the most striking outcomes of the Great Recession in the United States is the contrasting experience of the "haves" and "have-nots." This is true for individuals, corporations … and for commercial real estate markets. Transaction indices suggest, and anecdotal observations confirm, that U.S. commercial real estate (CRE) prices have risen substantially over the past year in a few high-profile markets, notably New York City and Washington, D.C. Yet values in most other U.S. cities have remained stagnant at best, and in some cases are still falling.

We believe that pricing divergence between the haves and the have-nots will remain, and in fact widen, for the next one to two years due to a combination of persistently low risk-free rates, hungry global capital, earlier recoveries in international gateway cities and, most importantly, a scarcity of willing lenders for nonstabilized assets. Three drivers of property pricing illustrate this pricing divergence: 1) tenant dema