First quarter forecasts are particularly challenging in the commercial real estate industry. However, in 2015, there seems to be no question that the sector is stronger than it’s been in years. With the improvement of economic factors such as employment rates, consumer confidence and spending, and business investments, real estate values are expected to appreciate across all property types nationally in 2015.
According to George Ratiu, Director of Commercial Research for the National Association of Real Estate (NAR), the demand for commercial space will lead to an increase in net absorption rates. While new commercial construction is also on the rise, the growth is much slower than absorption, leading to declines in availability and increasing rents. The only exception is for the apartment market where a strong, new supply of multifamily housing is already placing downward pressure on rents.
Ratiu further explains that as property fundamentals continue to improve, investors will find commercial real estate very attractive adding additional capital to the sector. His analysis is based on the following factors:
- Investment sales have posted higher volume with each subsequent year following the recession and 2014 was no exception.
- Sales volume in 2014 totaled $433 billion.
- Prices rose across the board with apartment and CBD office properties surpassing pre-recession peaks.
- Commercial lending found new vigor in 2014, as sources broadened and capital availability increased.
With these continued advances in property prices, sales volume, and leasing activity, 2015 should prove to be a great year for the commercial real estate sector. You can find George Ratiu’s complete interview on Page 12 of the NAR’s Spring 2015 Commercial Connections publication.
