The commercial real estate (CRE) market will not likely post signs of recovery until mid-2010 and faces key challenges ahead, according to RBS Securities. Commercial real estate is faced with deteriorating fundamentals, the RBS analysts say, as well as high vacancy rates and upcoming refinancing needs, RBS Securities said in market commentary Thursday. The firm said rising vacancy rates within properties secured by loans within various types of commercial mortgage-backed securities (CMBS) indicates a lack of improvement in the market over the first half of 2009. RBS Securities said a wave of post- holiday retail bankruptcies may arrive after stressed retailers put off bankruptcy in hopes of catching a spike in sales before closing. But the CMBS market will also face pressure as loans require financing in coming years. "CMBS often have balloon payments on fixed schedules, from 5 to 10 years and need to be refinanced into a new loan at the end of that period or paid off completely," RBS said. "Although the improvement in securitized markets has been material to be sure, it hasn't returned to a state where issuance can keep up with these refinancing needs. In any event, pressure on this market seems far from abating and the post-Christmas hangover for CMBS this year could be quite severe." The pain in the US financial sector is making an impact on the US Government, which faces huge deficits in the midst of multi-trillion-dollar bank bailout and economic stimulus efforts. RBS Securities noted Moody's warned Thursday the US may lose its sovereign triple-A rating if it does not reduce its budget deficit to more manageable levels over the next few years. The firm added that an imminent change in the US rating remains unlikely as long as Moody's outlook for the US rating remains stable. RBS Securities expects a record net Treasury issuance of $10bn for the coming week. Write to Diana Golobay.