Let’s look at the Macro Trends* that may impact commercial real estate in 2014 and beyond. It should be noted that these are not necessarily reflective of existing local market conditions.
In a nutshell commercial real estate continues to show gradual decreases in Vacancy and increases in Demand with very little new construction (see Vacancy Chart Below). This has resulted in stabilization in rents for many markets across the country. The ULI/PWC market report is calling this the “Recovery from the Recovery”
Some of the Macro Trends driving overall supply and demand includes:
TAILWINDS:
GDP Growth
Low Interests Rates (relative to historic norms)
Increasing Sale and Leasing velocity
Energy Self Sufficiency in the U.S. (huge impact which is key to many economic sectors)
Positive Employment
HEADWINDS:
Long-term Unemployment (a large percentage of the unemployed are long term- over 27 weeks)
Federal ,State and Local Government debt
Sovereign Debt and Possible Deflation in the EU (IMF has warned about a Japanese type Deflation)
FASB/IASB – This is recognizing operating leases on Corp. Balance Sheets (still Pending)
EMPLOYMENT DRIVERS: Energy, Education, Medical, Technology and FIRE in some parts (Finance, Insurance, Real Estate).
INVESTMENT PREFERENES: (ULI Survey): Industrial, Multi-Family, Office, Retail
NICHE PLAYS: Medical Office, Urban Mixed Use, Data Center, Mixed Use Lifestyle, Student Housing.
DEMOGRAPHICS: Generation Y (Millennial’s) 72+/- Million strong is starting to make their presence felt and will have greater impact on commercial real estate as they mature.
CENTRALIZED to DECENTRALIZED: Movement to smaller spaces in particular the Retail and Office Sectors.
INVESTMENT LOCATIONS: Movement to additional Markets, from Core to Secondary and Tertiary markets.
VACANCY TRENDS:
Q4 2013 2014 YE Forecast **
Office: 16.9% 16.5%
Warehouse: 11.5% 10.9%
Flex/R&D: 13.4% 12.8%
Retail: 10.4% 10.10%
Multi-Family: 4.1% 4.2%
**REIS Reports
Stay tuned for an upcoming Blog that will take a deeper look at the product lines above, the Systemic Trends that are impacting them and the investment market trends with regard to returns.
By Fred Schmidt, President and COO, Coldwell Banker Commercial Affiliate
The “Macro Trends” have been derived from sources such as REIS Reports, PWC/Urban Land Institute Market Forecast, Strategic Advantage (CEL Associates) Wall St. Journal and the IMF.
