Jeff Adams Real Estate Seminar Commercial Real Estate Forecast 2014-15 Report Non-residential real estate value should increase at a modest-to-moderate pace in the coming 2 years (2014 and 2014), with stronger operating earnings partially offset by rising interest rates.
Commercial Real Estate Review
Private non-residential building is growing at a fairly strong pace, except in comparison to its past peak. Full dollars spent have increased by nearly 10 % in the past 12 months. Nationally, office vacancy is edging down, though 16 % vacancy doesn’t seem to justify the 17 % increase in office construction.
Industrial vacancy has dropped by almost 1 % point in the past year. Developed construction has increased by nearly 8 % in the past year. Sell also enjoys slowly declining vacancy and more construction but again from a low base. Hotels are enjoying higher occupancy as well as average room rates that have increased by 3 %, on about one percent more rooms available.
Commercial real estate owners have improved their skill to repay debt, with the bank charge-off rate down to just 5 basis points last quarter years.
Increasing commercial mortgage interest rates hurt investment property values in 2013, as shown by REIT prices. Combining appraisals of institutional properties with operating earnings indicate that totality returns in 2013 averaged 11 %. That’s higher than the 9 % long-run average.
Commercial Real Estate Forecast
The increasing economy will boost occupancy and provide chance to increase rents. There is comparatively little new supply coming to market in most cities, so landlord will be in the catbird seat for a few more years.
The forecast for building is also positive, though it will be years before it is really strong. Vacancy rates are still high enough, on average and discourage extensive development.
Property values are a little tougher to expect.
On the plus side, higher operating revenue should boost values. On the negative side, higher interest rates will be a downward force. Past experience argues for increasing values in this type of market, but don’t expect appreciation to be as strong as the rise in earnings.
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