This contributed column is sponsored by Business Facilities LiveXchange.
Posted by Heidi Schwartz
Commercial real estate investments are expected to produce generally solid returns in 2014, according to the authors of Expectations & Market Realities in Real Estate 2014—The Future Unfolds, an annual forecast report released by Real Estate Research Corporation (RERC), Deloitte, and the National Association of REALTORS® (NAR).
The three organizations have drawn on their respective capabilities to examine the economy, capital markets, and commercial real estate property markets; thoroughly assess and analyze existing research; and offer an objective outlook for commercial real estate for 2014 and beyond. Findings indicate that although uncertainties remain, the economy is expected to continue to grow slowly and improve modestly in 2014. Capital is flush, and commercial real estate investment has expanded to the secondary and tertiary markets. In addition, the report carefully analyzes and offers a research-based assessment of the office, industrial, apartment, retail, and hotel property sectors. The report also provides an outlook for the three mostly likely economic and investment scenarios for 2014 and beyond.
“We have seen steady if slow progress since the commercial real estate market collapsed in second quarter 2008, and as the future unfolds, we expect that the positive returns for commercial real estate will continue,” stated Kenneth Riggs, Jr., president and CEO of RERC. “The value increase from the trough is now about 30 percent, just slightly less than the value lost during the past 6 years. Although returns are likely to be positive in 2014, we forecast them to be a little lower than in 2013, but still a very reasonable approximate average of 8.75 percent.”
“The stabilization that we have seen in the commercial real estate markets during the past year has added greatly to the ‘cautiously optimistic’ outlook we have for the year ahead,” said Matthew Kimmel, principal and U.S. real estate sector leader for Deloitte Transactions and Business Analytics LLP. “Overall, we see the potential for moderate and continued growth in the volume of commercial property transactions and in property prices.”
The commercial real estate recovery is expected to continue throughout 2014, based on slightly stronger economic growth, noted Lawrence Yun, Ph.D., NAR chief economist. “We anticipate the economy to grow at an annual rate of approximately 2.6 percent, with about 2.2 million jobs to be added in 2014. More jobs mean increased demand for office, retail, apartment, and other commercial real estate sectors,” noted Dr. Yun.