The US Commercial Real Estate Market: An Overview And Predictions

According to recent data published by the Royal Institution of Chartered Surveyors, the world’s major markets are showing clear signs of recovery. How has the US commercial real …

According to recent data published by the Royal Institution of Chartered Surveyors, the world’s major markets are showing clear signs of recovery. How has the US commercial real estate industry faring in this respect?

The US market in context

During 2013, the markets that experienced the most obvious signs of improvement were the United Arab Emirates and Japan.

Not only did these markets show strong performance indexes, but analysts forecast that investment and occupier sentiment indicators will remain strong during the next 12 months. The US market appears in the next global performance bracket, along with Russia, China, South Africa, and New Zealand. 

According to data released by Jones Lang LaSalle, the US commercial real estate industry is back on track, showing an encouraging 7 per cent year-on-year increase in the number of transactions carried out. During 2013, investments made on commercial floor space across the US exceeded the $300 billion mark. Compare this to $27.55 billion in Japan and $60 billion in the UAE.

Industry trends in detail

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Recovery was the predominant industry theme during 2013. The last quarter of the year saw the sharpest vacancy rate decline experienced by the industry over the last six quarters, dropping to 14.8 per cent in the office market, 12 per cent in retail, and 11.3 per cent in the industrial market.

In the retail sub-sector, the worst performing markets were Houston, Detroit, Austin, Albuquerque, Nashville, Chicago, and Charlotte. The biggest improvement indicators belong to Dallas, New York, San Diego, and Memphis. 

The industrial commercial real estate market continues its uninterrupted recovery trend, which has now lasted for fourteen consecutive months. Demand for industrial floor space was particularly strong in Los Angeles and Chicago, which remain the country’s largest industrial property markets. Dallas and Minneapolis experienced the most dramatic increases in take-up rates, followed by Wilmington and Forth Worth.

As for the office sub-sector, the best performing markets were Wilmington, San Jose, Trenton, and Boston. Overall, 68 per cent of all the markets surveyed showed an increase in take-up rates.

Future forecasts

The data revealed in a 2013 survey carried out by the Urban Land Institute suggest that the future will continue to look bright for the US commercial real estate industry, at least in the medium term. Transaction volume forecasts for 2014 are in the region of $340 billion, increasing to $360 billion by 2015. 

The survey also shows that the value of commercial securities backed by mortgages will rise to $80 billion in 2014, a figure that represents an increase of nearly 50 per cent when compared to data from 2012. The net value of mortgage-backed commercial securities is set to continue its upward trend, reaching $100 billion by 2015.

As for returns on investment and price growth, analysts remain cautious and prefer to bet on a period of stabilization. Total returns are expected to hover around 8-9 per cent over the next three years.


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