Commercial real estate executives are more optimistic about their industry in 2014. And they’re expecting deal activity to continue to rise as the year moves on.
That’s the takeaway, at least, from the 2014 State of the Market real estate survey by DLA Piper.
The survey, which measures the attitudes of 158 top commercial real estate executives, reached a milestone this year: Executives surveyed this year expressed greater optimism than in any year since DLA Piper started the survey in 2005.
Jay Epstein, co-chairman of DLA Piper’s Global Real Estate Practice, told Midwest Real Estate News that three main factors have fueled this optimism: The country has seen solid job growth in the last 12 to 18 months, there is plenty of capital chasing real estate and interest rates are still at historically low levels.
“The alternative investments to real estate aren’t very attractive right now,” Epstein said. “People, domestically and globally, are looking to park their capital in real estate. That’s providing a boost to commercial real estate.”
According to the 2014 survey, 89 percent of commercial real estate executives feel “bullish” about the next 12 months.
Executives also said that several key trends will steadily change the real estate market. They pointed to re-urbanization — more people moving back into cities and downtowns — as one of these trends, and one that is particularly powerful right now.
A growing number of people want the urban experience. They want to live in the center of cities, relying on public transportation and their own feet to get around. It’s a trend that is strong now in Midwest cities such as Chicago and Minneapolis, and on the rise in metros such as Cleveland, Detroit and Indianapolis.
“The move back into cities is driving real estate decisions right now. People are building multi-family projects and retail centers in the heart of city downtowns to capture the business of all the people moving into them,” Epstein said. “There is this drive toward convenience. You have Millennials who rely on Zipcars and bike-sharing programs. People are re-imagining and re-inventing how they get to work. And it’s not just how they get to work, but how they do all the other things they need to do in their lives that is changing.”
This trend is even impacting traditional enclosed shopping malls. These massive indoor malls are struggling across the country and the Midwest today. Today’s consumers don’t want to spend all day inside a shopping mall. In response, a growing number of owners are converting these malls into outdoor lifestyle centers, mimicking the feel of urban downtowns.
Real estate executives are also keeping an eye on the slow, but growing, intrusion of crowdfunding into commercial real estate. In crowdfunding arrangements, large groups of investors put up smaller amounts of money to purchase real estate. It allows smaller investors to sink their dollars into strong real estate investments.
According to the DLA Piper survey, 24 percent of surveyed real estate executives said that they thought crowdfunding will become an important source of real estate capital. Of course, 45 percent of surveyed executives said that it would not become important.
But as Epstein says, no one really knows what role crowdfunding will play in commercial real estate.
“It won’t play a role in the billion-dollar transactions in San Francisco or Washington, D.C.,” Epstein said. “But it might play a role in the smaller markets. People view real estate as an attractive investment. There is an opportunity for people to get into real estate by putting up smaller dollar amounts through crowdfunding. I think it will play a role as technology and innovation continues.”
Epstein points to the steady rise of online retail sales as an example.
“Think back 15 years ago. No one thought e-tailing was going to play an important role,” Epstein said. “And now look at how it has disrupted the retail marketplace. We are in the very early stages of crowdfunding. We have yet to see how it will eventually disrupt the real estate market.”
