GLOBAL - Investor interest in commercial real estate increased as the industry began showing signs of recovery, according to Deloitte.

However, the consultancy warned that fears of slowdown in the economy might yet stall such an expansion in demand.

Bob O'Brien, head of the real estate practice, told IP Real Estate: "Sellers and buyers are coming to agreement on deals. Investors - such as REITS, private equity and foreign investors - are actively competing on deals for both trophy and distressed properties. A significant amount of capital is being raised."

Despite the economic uncertainty, increased transaction activity is bringing into the market investors and lenders who had been "sidelined for the past several years", O'Brien said.

The industry, however, is not completely out of the woods, he said.

Slow economic growth in the US, coupled with a high unemployment rate and fears of a double-dip recession continue to cloud the industry outlook, he said, adding that, without a widespread economic recovery, demand for commercial real estate would fail to expand further.

Activity in the market, he said, had primarily been driven by well-leased and well-located office and hotel properties in "gateway cities". He added that these would be slow to expand to lower tier properties and tertiary cities, "unless we see a broad-based economic growth".

Meanwhile, a relatively stable global economy could mean increased capital flows into the real estate markets of Europe and the US, according to a Deloitte report released yesterday.

The report, entitled 'Commercial Real Estate Outlook: Top Five Issues in 2011', said: "This is likely to fuel investments in the US and Europe, although Asia Pacific may experience a modest tempering of activity."

The report pointed out that a widespread recovery in the market was unlikely without the help of non-trophy assets.

Lending to non-trophy assets need to resume and "refinancing options increase" if such assets are to attract more buyers, it said.

It also predicted that REITS would dominate burgeoning real estate transactions in 2011, "albeit with increased competition from other investors".