The start of 2010 is showing signs of growing investor demand in U.S. commercial real estate, and potentially in related secondary markets, despite the lagging performance of underlying collateral. The pick-up is also predicted to be mirrored in similar markets in Europe and Asia, areas expected to see comparatively better performance relative to the ailing U.S. market. In a report from the rating agency Moody’s Investors Service, analysts project some pick-up in commercial real estate (CRE) demand after Q409, which would help markets after little movement for much of the year. A majority of the commercial sectors, 51%, remain in poor-performing status in Q409, according to the report--but Moody's notes that number is down from 53% in the previous quarter. All but hotels showed improvements from Q309, but despite the gain, all sectors but multifamily continue to hold at a medium performance. The five best markets in the US, as ranked in the report are: Honolulu, Las Vegas, Pittsburgh, Newark and Raleigh. The five worst: Detroit, Phoenix, Atlanta, Charlotte and Indianapolis. The credit rating agency Fitch had a bleaker outlook for commercial real estate, when it reported that the amount delinquencies in commercial mortgage-backed securities (CMBS) reached 4.71% at the end of 2009 and could climb as high as 12% at the end of 2012. A report from the mortgage-data provider, Trepp, had the delinquency rate for CMBS above 6% in December 2009, and data from the credit-rating agency Realpoint showed a delinquent unpaid balance in CMBS climbing 16% in November 2009 to $37.93bn. On a global scale, US commercial property lags behind. A report from the financial services provider Credit Suisse claims that capital values are currently bottoming in many global markets, and CRE valuations “look appealing” as initial property to government bond yield spreads remain high worldwide. “Total returns turn positive considerably before rents find a floor since rental yields are always positive and may offset negative rental developments. This is especially true in times of high initial yields such as today,” according to the Credit Suisse report. “We therefore think that the year 2010 can finally mark a turning point for global direct commercial real estate investments.” While demand is growing in US markets, it remains behind Western Europe and Asia, which posted positive returns. According to the report, structural adjustments in the consumer sector, weak occupancy and foreclosure sales caused by refinancing problems continue to hold back US CRE. Prime office vacancies rose 15% in every major city, according to the report. But, according to Credit Suisse, there are some opportunities in the US. Average CRE prices declined by 40% since the middle of 2007 but stabilized to pre-bubble levels. Bargain prices could attract foreign investors like the Bank of China, which, according to the Financial Times, is actively seeking property in New York, Los Angeles and San Francisco. The Bank provided $120m for the New York Time building near Times Square. This demand echoes a recent survey by the Association of Foreign Investors in Real Estate (AFIRE), which showed that 51% of respondents targeted US properties in 2009. In a sign of growing demand, the percentage increased from 37% in 2008. Investors in the US are starting to sense an improvement on the way in 2010. John Levy, the founder of John B. Levy & Company, the real estate investment banking firm, said that 2009 started out with "Armageddon trade," when predictions of a banking system collapse were prevalent. But, he said, the mood in 2010 has changed. "The rebirth of the CMBS market is absolutely going to happen this year,” Levy said. “Last year, we had three CMBS deals, and that was three more than anyone predicted. The CMBS market in 2010 won’t resemble the one we knew and loved in 2007, but we will see a rebirth with reasonable and rational underwriting. I even think we’ll see the first multi-borrower CMBS deal this year.” Write to Jon Prior.