It’s been a strong year for commercial real estate. The industry, for the most part, continues its recovery in fundamentals, and, in many markets, pricing is back to pre-recession levels.
And, the year’s not over yet. Below we outline five of the trends we’ll see in the real estate industry in the remainder of 2014 and into early 2015.
Prediction #1: Multifamily supply will increase, causing vacancies to rise as more product hits the market. 200,000 new apartment units are expected to come to market in 2014, as detailed in a recent Reis report. While vacancy rates rose to 4.2 percent nationally, rental rates also grew by 1.1 percent, as consumer demand for apartments increased. We expect this trend to continue during the fourth quarter and beyond as more supply is created. Freddie Mac estimates that roughly 440,000 new units will need to be added annually for the next decade to support demand.
Prediction #2: Retailers MIGHT have a challenging holiday season, which could impact 2015 growth in the retail development sector. From a seven-percent sales drop projected by PwC to a 17 percent jump forecast by eMarketer, analyst predictions are across the map. Walmart, the world’s largest retailer, has had good sales of late and Macy’s executives appear confident that sales will pick up during the holidays, despite a recent decline.
Prediction #3: Demand for industrial space will begin to wane slightly. NAIOP predicts that there will be 56.4 million square feet of industrial absorption this quarter, down slightly from 59.1 million square feet in the third quarter. The decline in demand, which is expected to continue into 2015, is a result of both the massive absorption of pent-up demand that took place in 2014 as well as moderate growth in the U.S. economy, though growth in the energy industry could give the industrial sector an extra booth.
Prediction #4: The office market will continue to rebound. Vacancy rates in the US office sector fell below 16 percent in the third quarter, a six-year low, and are expected to drop further. Additionally, JLL anticipates that some US markets, like Boston, Chicago, Los Angeles, New York, and San Francisco, will be top performers globally by 2015, joining cities like Beijing, Dubai, London and Tokyo.
Prediction #5: The single-family housing market should further stabilize. Though the US housing market’s performance has varied tremendously in the last few years, ULI’s Emerging Trends in Real Estate report projects improvement in the near term, as the sector “returns to the classic principles of supply and demand.” Though the report doesn’t expect off-the-charts growth, a shortfall in new housing developments for sale will create more demand.
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