Steady Optimism Among U.S. Commercial Real Estate Executives, Increased Investor Appetite
This contributed column is sponsored by Business Facilities LiveXchange.
Posted by Heidi Schwartz
Investor and lender confidence in the U.S. Commercial Real Estate market are reaching new heights since financial giants fell more than five years ago, according to a survey conducted by Akerman LLP, a U.S. law firm. The Akerman Real Estate Industry Outlook Survey indicates that domestic investors have a stronger appetite for real estate assets than in recent years. Capital availability from a wide range of equity sources also is expected to improve in 2014, with increased activity by institutional forces.
The Akerman Survey, an annual measure of economic conditions, investor confidence, and key market indicators in the commercial real estate sector, mirrors the perspectives of nearly 300 CEOs, COOs, and other top industry executives who attended the Akerman Summit.
“We developed the Akerman Real Estate Industry Outlook Survey after the real estate downturn to help our clients better understand and anticipate changes in the market,” said Richard Bezold, chair of Akerman’s Real Estate Practice Group. “In conjunction with the Akerman U.S. Real Estate Summit, the Survey provides real estate leaders with valuable data and insights on new market trends and investment opportunities, and overall confidence levels.”
Top executives from across the U.S. were interviewed by telephone on their perceptions of the health of the commercial U.S. real estate market. A count of 203 interviews were completed in conjunction with the 2014 Akerman Summit. Interviews took place between January 20 – February 7, 2014.
Increased Confidence And Capital Flows
An overwhelming majority (70%) of real estate executives reported a more optimistic outlook about the market in 2014 than in 2013. Akerman Survey respondents foresee increases in capital availability from nearly all sources except government entities, which have remained at the bottom of the capital availability pool for two consecutive years.
Private equity sources are predicted to drive U.S. commercial real estate financing in 2014. REITs are expected to continue to serve as a leading source of real estate debt and/or equity funding while banks also are projected to boost funding in 2014. Confidence in the banking industry as a primary source of commercial real estate financing has increased by 34% since 2011.
The CMBS market also is expected to play a more pronounced role in 2014. Less than 1% of industry executives expected to see a change in capital availability within the CMBS sector in 2011, but a third of executives predict that CMBS issuance will be an active component in the capital stack for 2014.
Sector Strength And Foreign Investment
Respondents predict that the industrial sector will see an influx of activity, closing the second most deals during the year, followed by the retail, hospitality, and office sectors.
Regarding foreign investment, the U.S. is expected to remain a top global investment destination. Real estate executives indicated that foreign investment will further drive activity across many U.S. real estate sectors, with a third of respondents indicating that the nation will see an increase in foreign spending in 2014.
In the hospitality and industrial sectors, about half of real estate executives predict that investment will come from Latin America while capital sources in the retail and office sectors are predicted to be primarily European and Chinese. Just over half of real estate executives (51%) say that the greatest increase in Latin American real estate investment in the U.S. will come from Brazil. Executives made a similar prediction last year.
“Latin American investment, in particular, is expected to continue to influence investor and development activity in New York and Miami, and in many secondary U.S. markets as well,” said Bezold.
Despite the increased optimism in the U.S. commercial real estate market, government shutdowns and future government spending continue to mute executive confidence levels. More than half of survey respondents cited government policies and Congressional gridlock (collectively 52%) as primary reasons for their lack of confidence. For three consecutive years, real estate executives have reported U.S. policies, availability of credit, and refinancing challenges as the most pressing issues facing the real estate industry. Concerns about refinancing challenges have decreased by 20% since the 2011 Akerman Survey, while the uncertainty of government policies has increased by 7% during the same period. Global economic uncertainty also continues to be a concern (25%).