Commercial real estate is set to continue its slow-but-steady growth rate in 2015, according to CRBE, the largest commercial real estate investment company in the world.
“The party hats didn’t exactly end up hanging from the rafters at CBRE Sacramento’s 2015 market forecast … with speakers skewed more toward moderate but positive growth,” Ben van der Meer wrote for the Sacramento Business Journal Dec. 10. “On the other hand, the forecast for every sector, from office to retail to industrial to multifamily, was trending upward.”
While the commercial real estate market has been recovering for several years now, this is the first time in quite a while that all market sectors are on the rise simultaneously.
Strongest Segments
Multifamily and industrial buildings are expected to be two of the strongest types of commercial real estate holdings next year.
Speculative construction of industrial spaces has also become profitable again, but land shortages may become a problem, according to Todd Sanfilippo, a CBRE senior vice president.
“Industrial owners are being required to make extensive use of technology to build adaptable distribution centers, specifically utilizing things like automated warehouse management systems. Given this, we have seen a substantial increase in the need for construction loans to fund such projects,” said Taylor W. Grace, managing partner at Midwest Capital Funding.
Office buildings can also be a solid investment, but will need to be rethought to meet the needs of younger workers and newer business models. This will include increased collaborative space and more flexible work stations.
Economic Factors
One of the biggest drivers for commercial real estate in the United States is job growth. According to the Labor Department, the U.S. added about 321,000 new jobs in November, continuing a trend of steady gains this year.
Employment growth factors into leasing, sales and commercial development. “Job growth is a huge driver for our business,” Bob Sulentic, chief executive of CBRE, told Investor’s Business Daily Dec. 11.
But commercial real estate is outpacing recovery following the global financial crisis. The reason for this, according to Sulentic, is that capital has been flowing into real estate as a true investment, instead of just a reflection of immediate market needs. This allows commercial real estate to grow partially independently from underlying economies.
“It has increasingly become an accepted investment class and has outperformed equities over the last 10 years,” he said. “And yields are good.”