Contributors of the Magazine of the Urban Land Institute, Peter Burley and David Lynn, published an article earlier this year about the potential trends for 2015 commercial real estate based on trajectories from the entirety of 2014. Though there are many variables that determine trends of commercial real estate for the United States, here is a recap on what the two predicted would be the movement of 2015 commercial real estate:
The first thing Burley and Lynn noted was that there would be increased allocations and capital flows. Since many institutions, including high-net-worth investors, were under allocated to real estate, and there were many strong four-to-five year performance increases of NCREIF and NAREIT, expectations concluded that commercial real estate investment capital would increase. According to Burley and Lynn, “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 multi-year run-up in equity and bond values,” (Six Trends in Commercial Real Estate to Watch For in 2015).
Their next prediction was that industrial real estate would continue its steady improvement. Prior indications noted that economic slowing overseas undermined growth for some major ports and large airports, but despite this information, demand for industrial space has been growing consistently throughout the year. An increase in consumer spending on furniture and electronics in particular led to an influx in economic recovery, which shows little sign of slowing down at any point soon.
Another major trend Burley and Lynn pointed out in their article was that the multifamily commercial investments would still be popular through 2015. According to the article:
“Multifamily transaction volume has reached pre-recession levels, outstripping office transactions for the first time in ten years, as real estate investment trusts (REITs) and pension funds have fed a fierce appetite for the multifamily sector. The pace is unlikely to slow anytime soon. Apartment demand has been – and is expected to be – robust, supercharged by the shock waves of the recession and by strong demographic trends that are only beginning to manifest,” (Six Trends in Commercial Real Estate to Watch For in 2015).
In addition, cap rates fell back 6 percent in 2014 and most deals took place in large urban markets like LA, New York, and Washington DC.
For further information on Burly and Lynn’s commercial market predictions for the rest of 2015, you can find their article here.