Despite some favorable sentiment in the real estate capital markets and economy at large, January's small-cap market results were short on positives. Rents continued to drop across all property types with industrial losing the greatest percentage, at 0.74% (74 basis points). Industrial rent levels are now 12% below their peak in the fall of 2007. Office, shopping center and retail rents declined less substantially last month and, in fact, the flattening out of the trend lines in the latest National and Regional Trends Update offer some hint that the worst conditions may be behind us. At least, the downward slope of rent changes no longer induces vertigo.

Even so, leasing conditions are challenging and, by evidence of Boxwood's Days on Market (DOM) metric, demand for commercial spaces remains tepid. This comes as no surprise, as the job growth that triggers net leasing gains tends to lag initial signs of economic recovery. As a result, DOM rose to new highs in January across all property types, with marketing time for shopping center leases increasing the most, by 8% to 216 days.

Needless to say, small-cap market fundamentals are fragile and, hence, uninspiring to most traditional capital providers. However, it's clear from our report that regional performance differs widely, and lenders that carefully gauge the opportunities against local market risks can be materially rewarded through new loan originations. Also, new federal proposals to broaden the lending authority of the Small Business Administration can extend a needed, helping hand to small business real estate owners. It may not be an "invisible" one (hand, that is), but it's still an important step along the road to economic and CRE market recovery.