Commercial real estate in 2014 had a strong run in most of the country—- and several industry experts expect the same momentum over the next 12 months.
The CRE Finance Council, which monitors commercial real estate investment activity, recently released a market outlook survey that points to a strong overall economy.
On the subject of potentially rising interest rates, most respondents think that they will increase, but have confidence that the Federal Reserve will push them up at a moderate level, unlike the spike that took place in 2013.
The survey found that 81 percent of respondents think there will be higher leverage rates, and CMBS lending will rise 10 percent to 20 percent from last year’s originations, hitting between $100 billion and $125 billion. Additionally, the report found that private capital, banks, and life companies will all increase their commercial real estate lending.
By sector, self-storage and hotels are forecast to have the highest returns in 2015. Multifamily and hotels are predicted to have the highest rent growth, and apartments should see the most development. Meanwhile, the Northeast, South, and Southwest are expected to have the most construction activity.
Stuart Saft of law firm Holland & Knight listed a number of reasons commercial real estate investors should be encouraged by 2015’s potential in a recent GlobeSt.com article. Among the positive developments are low fuel prices, a decreased federal deficit, unemployment below six percent, and a strong stock market.
The Urban Land Institute (ULI) has its own predictions for how the year will shape up, primarily that more capital will flow into commercial real estate from foreign and retail outfits. And, even though construction is slowly increasing, there will still be a lack of supply to meet demand. This, according to ULI’s predictions, will increase investor willingness to take on risk and enter “secondary” markets, such as Austin, Charlotte, Denver, and Philadelphia.
Finally, ULI and nearly every industry organization concur that the bulk of commercial real estate investment this year is going to follow job growth and stability. In ULI’s view, Austin, Houston, Portland, San Francisco, Seattle, and DC will be the most popular.
Things look like they are moving in the right direction the commercial real estate industry. Stay tuned to see how things fare in the first quarter and beyond!
Image Source: Simon Syon