Commercial Real Estate Recovery May Accelerate in Second Half of
2013 According to Jones Lang LaSalle
CHICAGO, Nov. 15, 2012 /PRNewswire/ -- The U.S.
presidential election may be over, but economic uncertainty will
continue to hinder corporate decision making and impede improvement
in commercial real estate fundamentals well into 2013, according to
Jones Lang LaSalle's 2013 National
Commercial Real Estate Outlook. Experts from the firm's Research
group presented key findings from the report in its annual media
webcast event Tuesday.
"The election itself doesn't clear the air of the uncertainty in
the marketplace," said Ben Breslau, Jones Lang LaSalle's Americas
Research Managing Director. "We have reasonable confidence that
some, or all, of the fiscal cliff may be averted, but the Euro
crisis may get worse before it gets better, and will continue to
drag on global confidence and the U.S. economy into 2013."
A recession is unlikely in 2013, Jones
Lang LaSalle's researchers concluded, but businesses,
lenders and investors are still waiting to see how legislators will
deal with the fiscal cliff, which consists of tax cuts set to
expire at the end of the year and federal spending decreases
scheduled to begin in January. Most aspects of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, too, will be implemented
starting in 2013.
"It takes time for policy action to translate into business
activity," Breslau said. "If we're able to clear some of these
hurdles without a big near term fiscal drag, the release of some
pent up demand could accelerate growth in the second half of
2013."
With a new recession unlikely, the forecasters called for
moderate performance improvement in the multifamily, hotel, and
industrial sectors nationwide, while balanced new construction and
absorption will negate any net change in retail fundamentals.
Growing bifurcation in the office market will increase rent growth
and net absorption in urban markets driven by technology,
healthcare and energy jobs, while occupancy and rent stagnate in
most of the nation's suburbs and in markets with little exposure to
those growth industries.
2013 Commercial Real Estate Outlook Highlights
- In office, a flight to efficiency is increasing demand for
large floor plates and newer properties that help to attracts young
talent and reduce tenants' operating costs through occupancy
rightsizing.
- E-commerce and m-commerce, or purchases over mobile devices, is
increasing demand for large distribution centers (500,000 square
feet or more), with 36-foot clear heights and extra parking for
labor-intensive picking of products and next-day delivery.
- "Experience shopping," and retail centers offering restaurants
and entertainment to attract customers, will fair best in an
otherwise challenged retail landscape.
- Multifamily performance to remain healthy as renter population
growth diminishes the threat of new deliveries. Investors to become
less risk-averse as they seek higher returns in secondary
markets.
- Hotel revenues per room to increase between 4 percent and 6
percent in 2013, fueling heady pace of investment activity reached
in second half of 2012. Lending for hotels to increase.
- Total investment transaction volume to increase by 10 to 15
percent in 2013, continuing 2012's slowed pace of trading following
a 64 percent spike in 2011.
2013 Real Estate Sector Forecasts
Capital Markets
Investment transaction volume will climb to more than
$200 billion in 2013, but at a
slowing pace. Yields will remain relatively attractive given the
widened spreads between U.S. Treasury rates and real estate cap
rates. Investors will continue to favor primary markets, but those
with greater risk tolerance will seek larger yields in rapidly
growing secondary markets including Seattle and Austin.
Despite structural constraints on U.S. banks, the cost and
availability of debt will support increased transaction volume.
Banks and insurers are active, real estate investment trusts are on
fire, and securitized lenders will fill funding gaps where buyers
seek higher leverage.
Policy & Politics
The election brought some certainty over the direction of
federal regulations and health care. Questions remain over whether,
or how, legislators will deal with a $16
trillion U.S. debt, constant annual deficits and the more
immediate threat of the fiscal cliff and near-term deadlines on
expiring tax cuts and spending cuts, said John Sikaitis, Jones
Lang LaSalle's Director of Office Research.
"In order to get past a lukewarm recovery from the economic and
real estate standpoint," Sikaitis said, "we really need some
direction from Washington on what
the overall fiscal and political direction of the country looks
like moving forward."
Outlook for Property Sectors in 2013
- Office: Overall leasing activity is declining, with
absorption highly segmented both among and within markets. Job
growth in technology, health care and energy – particularly natural
gas – is driving absorption in the major Texas and California markets, Denver, and a few others. Within metros,
tenants are migrating to more efficient, urban space and reducing
space requirements per person in the process.
- Multifamily: Growing populations of adults under the age of 35
and over 55, along with continued challenges towards home ownership
for members of Generation X and Y, will keep demand brisk for the
U.S. apartment market. Look for investment patterns to shift in
2013, however, as high pricing and competition for assets drives
buyers to secondary and tertiary markets in search of more
lucrative yields.
As lending requirements ease in 2013, more private investors will
enter the multifamily market. Some markets begin to see a risk of
overbuilding.
- Hotels: Transaction volume in hotels is on pace to reach
$15 billion by the end of 2012,
remaining steady on 2011 levels.. Availability of debt for hotel
acquisitions will be at its highest levels since 2007, and from a
variety of lending sources.
Private equity investors will again be the most active hotel
investment group, focusing on value-add strategies. REITs will be
the second most dominant investor type, buying up mostly
established, well-located hotels in core markets. Offshore
investors will continue to be players in gateway cities.
- Industrial: E-commerce is changing the way online retailers and
distributors use industrial space. Fulfillment is as much as five
times more labor intensive than traditional retail distribution as
workers pick and ship orders directly to customers. Tenants want
distribution centers close to population centers, too, in order to
reduce delivery times.
Limited supply and functionality of existing stock will lead to
increased build-to-suit activity in 2013. Look for a potential
boost in demand in 2013 from companies serving the recovering
housing sector.
- Retail: Retailers will continue to struggle with the battle
between e-commerce and m-commerce sellers, with firms that are able
to adapt to these new models coming out ahead. The shift to online
sales has retailers moving out of less-successful stores and
adopting smaller footprints.
Retail centers with restaurants or other entertainment venues will
outperform competing properties lacking in "experience retail
offerings." Traditional groceries are on the ropes while high-end
grocers will add stores in 2013. Mom and pop shops, office
suppliers, and sellers of physical media such as video games will
suffer.
Some retail markets hardest hit by the housing collapse, including
Las Vegas and Phoenix, will bounce back in 2013 as housing
recovers.
Click here for a replay of Jones Lang
LaSalle's 2013 Forecast presentation.
For greater detail on Jones Lang
LaSalle's research forecasts, visit the firm's research
reports at: www.us.joneslanglasalle.com and follow JLL research on
Twitter at @JLLResearch.
About Jones Lang
LaSalle
Jones Lang LaSalle (NYSE: JLL) is
a financial and professional services firm specializing in real
estate. The firm offers integrated services delivered by expert
teams worldwide to clients seeking increased value by owning,
occupying or investing in real estate. With 2011 global revenue of
$3.6 billion, Jones Lang LaSalle serves clients in 70
countries from more than 1,000 locations worldwide, including 200
corporate offices. The firm is an industry leader in property
and corporate facility management services, with a portfolio of
approximately 2.1 billion square feet worldwide. LaSalle Investment
Management, the company's investment management business, is one of
the world's largest and most diverse in real estate with
$47 billion of assets under
management. For further information, please visit
www.joneslanglasalle.com.
SOURCE Jones Lang LaSalle