By: National Association Of REALTORS® Research Team
When Real Estate Research Corporation (RERC), Deloitte, and the National Association of REALTORS® (NAR) began discussions to publish the annual Expectations & Market Realities in Real Estate 2013, they hoped that some of the uncertainty that has dominated the commercial real estate outlook for the past few years would be in decline. Instead, what they found was that the economy and capital markets appeared even more uncertain, and that there were major hurdles still to overcome before investors would have the clarity they have been wishing for.
Although a few questions have been answered — the Federal Reserve has initiated a third round of quantitative easing and has extended the time frame for keeping the federal funds rates low to mid-2015, and the November elections are over — other uncertainties remain. It appears that the political gridlock we have had for the past couple years will continue, at least to some degree, and we wonder if calmer heads will prevail. Slow economic growth, weak job growth, and unsustainable debt levels are here for the foreseeable future and we question if any industry can provide a meaningful boost to growth. Tax burdens and expenses of the new healthcare legislation are beginning to be felt, and new banking regulations are on the rise. The credit crisis in Europe has spread and the U.S. is beginning to feel the effects through lower export growth, all while the challenges in the Middle East are intensifying.
If there is one thing investors appear ready to do — perhaps even eager to do — it is to turn the page on the past few years. In general, investors want to put the past behind them, and although they may not know exactly where they are going, they know where they have been and that they do not want to return there. They know what they are dealing with, they realize that this situation will be with the nation for the foreseeable future, and they need to make adjustments in order to maximize commercial real estate investment performance and yield in this kind of environment. We believe that much of the critical research and analysis needed to do just that is provided in our new outlook report: Expectations & Market Realities in Real Estate 2013 — Turn the Page.
The first chapter of Turn the Page takes a look at the economy as the investment environment in which people invest. The outlook is for a continued slow recovery, with modest economic growth over the next few years and for slow job growth to continue. It is expected that once businesses get used to the new tax increases, that business spending (including hiring) may increase. In addition, it appears that the residential real estate market is finally starting to stabilize, and we may finally begin to see positive growth in this sector.
The capital markets take center stage in Chapter 2, as the report looks at the demand for commercial real estate as an investment alternative, as well as the availability and discipline of capital for investing in this asset class. Both debt and equity committed to commercial real estate investment are discussed.
Chapter 3 offers highlights and expectations for the five major property sectors—the office, industrial, retail, apartment, and hotel markets.
Analysis examines volume, pricing, capitalization rates, vacancy/occupancy rates, absorption and completions, and rental rates/revenues for each of the property sectors.
The final chapter contains the collective analysis of Deloitte, Real Estate Research Corporation and the National Association of REALTORS®, of the investment environment, the capital markets, and the property markets as each presents its outlook for commercial real estate for 2013 and beyond.