Five years after the Great Recession, lending conditions in REALTOR® markets show signs of recovery. With commercial real estate fundamentals and investment prices on a solid upward trend, the Commercial Real Estate landscape looks bright. Whether you are a sole commercial property owner or broker or you work for a large commercial real estate firm, these are the trends you should watch for in 2015.
This article, featured on Urban Land Magazine, was written by Peter Burley, Director of the Richard Rosenthal Center for Real Estate Studies, and David Lynn, CEO of Everest HIP. Burley and Lynn are also two of the contributors to ULI’s new book, The Investor’s Guide to Commercial Real Estate.
While many variables will determine the course of U.S. commercial real estate, here are six potential trends for 2015 based on the current outlook:
- 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. Look for higher allocation targets, and more foreign and retail investor money to continue to push capital values up well beyond the 2007 peaks, which should be cause for concern.
- Continued low supply. New supply is at a historic low (see figure above), 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.
To read the rest of Burley and Lynn’s article, click here.