State of the Market: What’s the Forecast for Real Estate?

Investments have their ups and downs; however, for commercial real estate investors, there’s no doubt that 2014 has been a year of ups. As the U.S. economy continues to recover, as it has over the past several years, commercial real estate remains one of the most attractive investment options out there.

However, investors rely on more than a “gut check” to make informed decisions about their portfolios. Marcus & Millichap’s Fall 2014 Capital Markets Report (now available for download) provides a brief but detailed analysis of the current state of commercial real estate and predicts what’s ahead for 2015. Here are a few highlights.

• Capital is available — Supported by a strengthening economy, capital from both equity and debt sources is increasing liquidity in the market and driving transaction activity.

• Commercial properties are hot — Investors at every level from individual local owners to REITs to private equity and sovereign funds are taking advantage of the opportunity for appreciation, strong revenue, and low cost of capital to expand and reposition their portfolios

• Prices continue to rise — Current owners are able to take advantage of growing equity, and investors are expanding their interests from core metros to non-core markets to find advantageous prices and reduced competition from other bidders.

As always, Marcus & Millichap watches for concerns in this positive trend. Job growth, ever an area of concern and a fundamental pillar of support for economic growth overall, is on our radar. Although many people remain underemployed or have left the workforce, the overall trend of stronger employment continues. Hiring has remained steady, and by year end, the U.S. economy is expected to employ 1.7 million more people than at the pre-recession peak.

In addition, all eyes are on interest rates, which remain at historic lows. There have been indications that the Federal Reserve will begin raising short-term interest rates early next year, but also that the increase will not be enough to slow economic momentum. While investors may see a tightening of yields, they will continue to enjoy strong returns, especially in comparison to other investment options.

Overall, the moderate pace of the economic recovery has been good for commercial real estate, stimulating growth without allowing another “boom-and-bubble” cycle marked by overbuilding and high vacancies. In fact, vacancies across all types are lower — particularly so in the multi-family market — so rents are climbing and demand is high. Investors are enjoying strong incomes and appreciation, and the outlook for continued steady growth means that for the foreseeable future, commercial real estate will be a wise investment.

For a more complete explanation and analysis of the current national market data, read the full report, compliments of Marcus & Millichap.

Download Marcus & Millichap’s Fall 2014 Capital Markets Report here.

Richard Matricaria
Vice President/Regional Manager