2015? “Finding the best investments in unfamiliar markets can be difficult. Class A office properties in one market are not always comparable to Class A office properties in another.”
Six potential commercial real estate trends for 2015 were identified in a recent article in Urbanland Magazine
The following is a summary:
Increased allocations and capital flows. With most institutions—not to mention high-net-worth investors—still being underallocated to real estate, combined with the strong four- and five-year performance of both NCREIF and NAREIT, we can expect more investment capital coming into commercial real estate. The significant amount of capital would be vexing if not for the fact that real estate seems to offer some of the best risk/reward propositions around, particularly given the multiyear run-up in equity and bond values.
Continued low supply. New supply is at a historic low, in part because market rents generally have not justified new construction and because financing has remained constrained. This leaves enormous upside potential in the property sectors to push occupancies and rents.
Increased appetite for risk. In recent quarters that investors have been willing to accept some additional risk to achieve higher yields. That has brought new activity to a number of secondary markets, and in addition, there has been some “trickle out” through the marketplace into still-riskier placements like Class B and C properties. Finding the best investments in unfamiliar markets can be difficult. Class A office properties in one market are not always comparable to Class A office properties in another. The same is true across the spectrum of property sectors across the range of markets—from secondary markets to tertiary markets—anywhere in the country.
Multifamily still popular. Multifamily transaction volume has reached pre-recession levels, outstripping office transactions for the first time in ten years, as real estate investment trusts (REITs) and pension funds have fed a fierce appetite for the multifamily sector.
Ongoing retail bifurcation. The day of the suburban mall, anchored by a mid-market department store, has probably passed. There will be no return. And we are beginning to see a deeply bifurcated mix of high-end urban retail destinations at one end of the retail spectrum with discounters at the other, and a scattering of local grocery-anchored strips in between.
Industrial continues its steady improvement. Demand for industrial space—particularly in gateway markets—has been growing. Economic recovery and an upward trajectory in consumer spending, on furniture and electronics especially, have led to the absorption in many major markets, and there has been considerable “trickle-down” into secondary markets.
Image with thanks to Martin Fisch https://www.flickr.com/photos/marfis75/