A Commercial Real Estate Outlook

The outlook for the commercial real estate market is encouraging in 2014, after the supply-demand imbalances have characterized many areas of the markets in the 2000s. The commercial real estate market has been affected by a loss of tax shelter markets and the presence on the market of some ill suited investors. However, after the crisis in real estate many of these unprepared investors were driven out from the markets. Today, the situation of the commercial real estate sectors has considerably improved. The mobility of capital has also improved and most experts agree that in the long run the prospects look favorable, with the condition that the real estate development keeps grounded in real demand and the real basics of economics.
In the early 2000s we were introduced to the concept of syndicated real estate ownership. The tax law changed and the collapsed markets have hurt many investors. For this reason, today the concept of syndication is applied only to more economically stable real estate. Recently, real estate investment trusts as vehicle for efficient public ownership of commercial real estate has also reappeared. These REITs can easily raise more equity for commercial real estate purchases and they can operate real estate more efficiently. It is likely that the REITs will increase in popularity as a vehicle of public ownership of commercial real estate.
As commercial real estate is becoming stabilized by balancing demand and supply, the strength and speed of the recovery is determined by economic factors. By learning form the past crisis investors are returning to the basics of good practices in real estate. This is very promising for investors in the O.C. Real Estate market or other strong markets. It is expected that the value of the non-residential real estate of commercial nature will rise in the coming two years at a modest-to-moderate pace. A possible and probable increase in the interest rates may partially offset the operating earnings.
Private commercial construction has been growing in 2014 at a fairly strong pace. In the past 12 months the total amount of dollars spent on private non-residential constructions have increase by almost ten percent. In the past year, the manufacturing construction has increased by almost eight percent. Nationally, we had a 17 percent increase in office construction projects, while office vacancy is edging down, as well as industrial and retail vacancy rate. In the past year, for hotels we had a higher occupancy than vacancy rate, and nearly 50 percent increase in hotel construction.
After the rising of commercial mortgage interest rates has negatively affected investment property values in the year 2013, the strong operating earnings allowed the property values to lately somehow recover. In the last quarter, the bank charge off rate went down to just five basis points and overall, the owners of commercial real estate have improved their ability to repay debt.
The forecast outlook for commercial real estate operating returns is strongly positive. The market is expanding again and that will provide opportunities for rent increases and boost occupancy. In most cities is relatively low supply coming on the commercial real estate markets, and that will help landlords be able to dictate the conditions for a few more years. It is also expected that the outlook for construction will be positive for the next years. Vacancy rates are still high, but once the market experience an occupancy boost the number of new construction projects will greatly increase.

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