Outlook for Commercial Real Estate Industry Positive in Q2-2015
The commercial real estate industry is poised to perform more solidly this year than it has in quite some time, according to findings in the “2015 Commercial Real Estate Report” issued by Deloitte U.S. Center for Financial Services. Commercial real estate fundamentals, including rent growth and occupancy levels, are improving across a variety property types with leasing gaining momentum. The report attributes the positive outlook to an improving U.S. economy and that investors generally are seeing healthy performances in most types of property and locations. Additionally, the availability of financing will continue to spur both domestic and international investment in U.S. properties.
Industrial space rent continues to grow, due primarily to growth in online shopping and international trade and manufacturing activities. In particular, the use of technology and online sales is resulting in a redesign of the supply chain, with location of warehouses and distribution centers more likely to play a more important role than in the past. The report suggests industrial real estate owners will need more flexibility to adjust to the changing inventory levels and space requirements of their tenants, giving particular scrutiny to the size and design of warehouses and distribution centers. The report calls for implementing additional technology, such as advanced supply chain and automated warehouses management systems.
As consumer confidence continues to rise so does an increase in consumer spending, which has resulted in retail vacancy rates and rents improving. In particular, the sector is looking at a spurt in redevelopment as opposed to new construction. Commercial real estate companies increasing their use of mobile, social media and predictive analytics should see an increase in customer traffic.
Because of an improving business climate and employment scenario, there has been a recovery in office vacancy rates and rental growth. New development is expected to remain low as tenants move toward utilizing space more efficiently, in part by focusing on flexible work space. To address their tenants’ shifting flexibility and sustainability desires, property owners should consider as options redeveloping and refurbishing space.
The apartment sector can look forward to declining vacancy rates due to improvements in the job market along with strong development potential, coming mostly from changing tenant preferences among younger and older generations. Both age groups are trending from single-family to multifamily homes.
This sector continues moving toward strong growth, fueled especially by higher occupancy rates. The report warns hotel owners to consider adopting new technology, such as smartphone or finger print-enabled access for door-lock security. Owners should also look at adopting lighting and temperature-control technological improvements. This is increasingly becoming more important as more non-traditional competitors like Airbnb, a company where individuals can rent out space in their homes to travelers, enter the market.
The report also urged industry members to consider using predictive analytics for tracking and evaluating tenant and customer demographics. Although the outlook is mostly positive, the report does mention some challenges, including pressure from non-traditional competitors, cybercrime, the continued need for sustainability, and increasing cost of regulatory compliance.