Jay Epstien
A vast majority of the country’s top commercial real estate executives say that commercial real estate activity — leases, purchases and new construction — will increase during the next 12 months.
That’s the main finding from the 2013 State of the Market Survey from DLA Piper.
According to the survey, 85 percent of 189 commercial real estate executives described their 12-month outlook for the U.S. commercial real estate industry as “bullish.” That’s a big increase from the 2011 survey from DLA Piper. Back then, only 30 percent of executives reported a “bullish” outlook.
Jay Epstien, chair of DLA Piper’s U.S. Real Estate practice, pointed to supply and demand as a main reason for executive’s optimism.
“We don’t have an oversupply of real estate right now,” Epstien said in a telephone interview. “There has not been a lot of development in recent years. At the same time, interest rates are so low, buying real estate doesn’t seem like such a bad idea anymore. That leads to more demand for not a lot of supply.”
Executives surveyed by DLA Piper said that low-cost financing thanks to artificially low interest rates and easier access to capital are two of the top reasons for their feel-good attitudes about the next 12 months.
Epstien said that most of the capital in the market today is going toward existing projects with established cash flows. But companies are finding capital, too, to help fund new developments, he said.
“You can see the cranes out there just as well as I can,” Epstien said. “There is new development occurring. We’re seeing it even in the office sector in some of our core cities.”
DLA Piper provided several other interesting findings from its survey:
- Executives believe the Fed when it says that interest rates will remain low for the upcoming year. Half believe interest rates will rise slightly, and the other 49 percent believe rates won’t change at all.
- 68 percent expect cap rates to remain steady. But 19 percent think cap rates are headed down, a sign that they believe real estate prices will go up.
- Health Care, although a specialized segment in the overall real estate market, is rated as the most attractive opportunity for investors in the year ahead, followed by multi-family and industrial.
- Political gridlock in Washington, DC is grating on executives and is ranked as the number-one factor that needs to change for the United States to get its fiscal house in order.
- The market remains awash in capital. Executives expect private equity (29 percent), foreign investors (26 percent) and pension funds (23 percent) to be the most active players.
– Dan Rafter
