Research and Emerging Real Estate Market in 2014
December 20th, 2013 by Diane Moore
“Genuine optimism is in the air as a major theme in the real estate market for 2014 shifts due to trends making considerable progress through the fiscal and real estate recovery rotations,” according to a leading real estate advisor.
The stable financial recovery and job development has generated a positive shift in the direction of real estate. This has pushed the commercial real estate market ahead, and the impetus of this revival seems substantial enough to get through increases in interest rates that may be unavoidable.
During a recent Fall Meeting in the “windy city” Chicago, the Urban-Land Institute along with their affiliate PwC, broadcast the 35th publication of Emerging-Trends in Real Estate. The tome is based on research carried out during interviews and surveys with more than 1000 professionals. The consensus is that what has been an unassuming recovery will gain ground in 2014. In addition, that gain should increasingly push growth in secondary-markets as investors glimpse beyond central cities in order to discover higher yields.
2013-The Year of Incentives
Specialist from the Midwest resonated the same optimism by agreeing that most of 2013 was a year of preparation for an even better 2014. Many feel that the commercial real estate boom in downtown Chicago and new or relocated employees, will push demand for new living quarters, retail, office, and restaurant projects in 2014. Their search for services that go with living in a metropolis and living an urban lifestyle will push this increase.
In fact, a few companies spent 2013 gathering staff for an unprecedented 2014 rush. Activity is expected to “go through the roof” as companies prepare by hiring triple the amount of staff they have at present. Not only are companies increasing their staff, but they are increasing their office space as well. For example, MACK Companies recently bought an 8000-sq ft office space to make room for its expansion into commercial-development and construction in 2014.
In addition, those involved in the healthcare real estate sector have started discussions not only about the Affordable-Care Act and the gazillion number of new consumers it will provide, but also the 60-million baby boomers currently on the brink of their senior years. This is in addition to the greater than before demand for senior living accommodations.
“As the rush of the aging population approaches, those who provide residents for seniors will find ideal opportunities as demographics will require more senior-housing in future decades,” states the founder and managing-director of Blueprint Healthcare Real-Estate Advisors.
“Similarly, clever real estate investors will find this beneficial category to be driven by need, along with advancement, recession resistance, stability, and revenue. The senior population will grant easy inclusion of new buildings in the healthcare real estate market,” he concluded.
Various Spaces And Their Impact on 2014 Real Estate Predictions
Industrial space is beginning to grow, with increasing deliveries up from previous years. Usually, industrial space has the briefest development and construction times and therefore is the first-sector to finish new projects when the market gets better. This characteristic indicates that vacancy-rates will not go too low; neither will rents rise too quickly.
Nevertheless, growth in volume of rented space will assist bigger-landlords and improve their efficiency, even though there is little achieved for proprietors with a couple of properties who must vie in a market with an increasing supply.
Retail space is in the throes of absorption more than construction. Nonetheless, there is plenty to be concerned about. Retail spending has grown by only 4.4% in the last year; one year ago there was a 6.2% increase, and the previous year a 7.8% increase. Recent figures saw an increase, but nothing extremely encouraging, especially in view of 2% inflation. Going forward, the finish of the temporary payroll tax-cut will squeeze quite a few wallets.
Investor interest has been robust, but the stock-market rush that took place not too long ago may move some finances away from real estate into stocks. Some experts feel it is imprudent to invest in the future founded on recent pluses and minuses; however, experts have noticed that this is exactly what many investors will do.
Some do not see the optimistic view so clearly in the coming year. Their consensus is that prices of commercial-properties are unlikely to show a powerful upward shift. Mild to moderate gains seems more likely, but prices are leaning more downwards than upwards.
What Real Estate Assets Will Be on Top in 2014?
For contractors eager to construct new buildings, the best opportunity was last-year in multi-family residential properties. In 2013, it’s the year of the single-family residence, with industrial real estate offering the best gains. In 2013 and 2014, retail space and office construction will be at the top of the list.
The biggest financial risk for commercial-property owners is a recession. A WSJ, Wall Street Journal, recent study of financial forecasters reveals a 17% risk of recession. Predictions place the recession responsibility on Europe’s financial condition. Europe was in a subdued recession, and then it made a negative turn. If bonds-default or bank failures commence, Europe’s economy could go down, with the effects setting off a US recession. However, that probably won’t happen, but you can never be sure.
Considering the risk, it might be wiser to sign a long-term lease at a modest rental-rate to holdout for a better rent in a couple of years. To holdout for the best possible rent will more than likely workout, but no one can be really certain.
What Is the Real Threat to Emerging 2014 Real Estate Growth?
According to Emerging-Trends in Real Estate, co-published by PwC, the main obstacle to market recovery is the timing-and-pace of interest rate hikes. They suggest a modest increase in the short-term, but a small increase will not cause any catastrophic disturbance to the recovery.
If increased interest rates are a part of the Federal Reserve Board’s reaction to a better economy in 2014, the growth in borrowing prices will be balanced by increased demand and result in higher-rents. Nonetheless, the report warns about the faster than expected increases, or, rates-increasing faster than the underlying-economy, which could possibly destabilize the recovery.
During 2013, investors were rushing to commercial real estate to find a way to add yield to their portfolios that consist of more conventional-assets of stocks and bonds. In 2014, investors will refocus on the basics that are being thrust to commercial real estate, as the possibilities of cash-flow growth are more and more apparent, according to survey respondents. In addition, there will be demographic changes with the surfacing of “Generation Y’s” partiality to living an urban lifestyle. This group is expected to move more during the next five-years than the general adult population.
Various markets projected to perform efficiently in the 2013 report are profiting from the consistent invasion of foreign capital. For example, Miami shot-up to number eight in the 2014-forecast from 12th and 17th in 2012 and 2013, and is benefiting from South American investment. Its homebuilding forecasts were especially preferred by respondents. Seattle, which came in sixth in the 2013 survey, is another example of a major city with worldwide connections, high-rate of educational achievement, and development in the tech industry, making it a center for international investment.
Markets to Pay Attention at
A brief look at the top-five markets ranked by research respondents and their viewpoint for each market:
- San Francisco is the highest ranked market for the second-year in a row, generated by a robust economy, which is predicted to create jobs at a rate of 2% in 2014. According to those questioned in a survey, San Francisco is a rock-solid “buy” for all property-types.
- Houston moves up from its number five spot in 2013’s survey because of its investment and homebuilding-prospects. Housing, commercial construction, and a revitalization in exploration-industries may be the main economic triggers.
- San Jose is in third position for a second-year in a row, with investors lured by the prospects of the city’s tech industry. Many believe that the job and income-growth caused by the sector will backup increasing real estate demand.
- New York goes down two-places to number four in the 2013 survey. The city’s investment and development mechanisms are still considered worthy; nonetheless, there is an increasing concern that pricing is becoming too extreme again. Rental-apartments and hotels are the property markets that respondents feel offers the most excellent opportunities in 2014.
- Dallas/Fort Worth moved-up four places to reach number five in the 2014 survey. Respondents ranked Dallas/Fort Worth highly for development and investment; however, it was healthy homebuilding-prospects that shifted the market upwards in the 2103 survey. Industrial/distribution is the property-type that survey respondents suggested the most as a “buy” in the survey.
The most important example of the change by investors from a few main markets into alternative markets is realized in the data for Washington D.C. The area is much desired for investment and developments because of its financial stability and its close connection to the federal government.
Positioned at the top by Emerging Trends before and during the recession, and placed at number-one as early as 2011, Washington, D.C. fell from number eight in a 2013 survey to number 22 in the 2014 investment-rankings, placing it near the middle of the 50-markets ranked in the report.
The report reveals that “fed-fatigue” meaning federal-government-fatigue seems to be thinning the investment attraction of the nation’s capital. Basically, what was once considered an asset is now deemed to be a liability, with apprehension caused by the federal-shutdown and the continuous indecision about federal-budget cuts and government spending.
Who Tops the Ranks for 2014?
As far as market sector prospects go, industrial seems to be at the top in the 2013 report, with warehousing grabbing a lot of attention as well. Warehousing was an obvious favorite amongst survey respondents, with 64% making a “buy” proposal for the sub-sector and less than 10% advising to sell.
With manufacturers and retailers ongoing downsizing of their supply-chains, the continuous upswing in e-commerce, particularly in same or next-day delivery, is increasing the prerequisite for enormous fulfillment-centers near major cities. Research and development-industrial, data centers, and self-storage, are also predicted to demonstrate additional improvement.
As a symbol of increased investor confidence, reports indicate that in 2014 there may be growth in new development activity in sub-sectors central business district-offices, and limited service hotels that have had no new construction in the last few years.
Multifamily housing has reigned as one of the most favored markets in recent reports, and is still much preferred by investors. As the underlying-fundamentals stay together, due to requests from Generation Y looking to rent, and baby-boomer’s desire to downsize from houses to apartments, this sector will continue to grow.
The projected interest in secondary-markets is a sign of how the US real estate recovery is growing beyond the conventional investment centers. Accessibility to greater sums of debt and equity financing, merged with a sustained improvement in the underlying economic-fundamentals, indicates that the advantages and returns offered in smaller markets could become extremely appealing.
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