Capital availability, price discovery and improved fundamentals, supported by alternative financing sources and loan restructurings, are fueling the budding commercial real estate (CRE) recovery according to Deloitte's "Commercial Real Estate Outlook: Top Five Issues in 2011" report.

"This is a positive year for commercial real estate so far. The uncertainty impacting the overall economy and other industries has had less of an effect on the real estate industry," said Bob O'Brien, vice chairman and real estate sector leader, Deloitte LLP. "It's important to remember that commercial real estate was the first sector to be hit hard by the downturn so it is further along in rebounding than other businesses. At the same time, the wall of debt maturity that will come due between now and 2015 still may present short and longer term challenges for the remainder of this year and into 2012."

Key findings of the report include:

- Sluggish economic growth while CRE fundamentals stabilize. While we're seeing a budding CRE recovery, subdued consumer spending, reduced federal spending, slow employment growth and a weak housing market threaten to delay the recovery. With the economy unlikely to be a short-term catalyst, strategies based on more realistic expectations of a modest and gradual return to growth are key.

- Increased liquidity as "amend and extend" gradually fades. Despite increased availability of debt and equity capital, issuance continues to favor high-quality, stable assets. Refinancing risk remains high due to the elevated proportion of commercial real estate loans scheduled to mature by 2015 that are held by regional and local banks facing liquidity challenges. Prospects for a broad commercial real estate market recovery stand to be enhanced when lenders resume loan originations for "non-trophy" assets and refinancing options increase to stabilize debt maturities.

- Real Estate Investment Trusts (REITs) and distress drive transaction activity. REITs are projected to dominate burgeoning real estate transactions in 2011, albeit with increased competition from other investors. Distressed transactions will continue in 2011 due to an increase in "real estate owned" as lenders gradually end "amend and extend" and permanently resolve troubled mortgages. However, a broad-based transaction market recovery will require demand in "non-trophy" asset sales.

- Impact of financial regulations on commercial real estate uncertain. Commercial real estate players are evaluating the potential impact of proposed legislation, regulation and accounting rules on the market while wrestling with uncertainty about how legislation such as the Dodd-Frank Act will be implemented. Other key issues include the Volker Rule, risk retention, lease accounting standards and covered bonds.

- Global commercial real estate to fuel investments. Global commercial real estate has benefitted from a rebound in manufacturing activity, increased business spending and higher capital flows into real estate.

- Economic growth looks on track despite natural disasters in Japan and political turmoil in the Middle East. Property fundamentals improved across regions while development activity remains muted in the U.S., rising in Europe and robust in Asia Pacific. This is likely to fuel investments in the U.S. and Europe, although Asia Pacific may experience a modest tempering of activity.