With the US economy steadily recovering from the Great Recession, and a flood of capital pouring into property markets, an overwhelming majority of commercial real estate executives report feeling optimistic about the sector’s prospects for 2014, according to DLA Piper’s 2014 State of the Market Survey.
The survey has measured the attitudes and perspectives of 158 top commercial real estate executives, since DLA Piper first started measuring the outlook in 2005.
“We decided—with the advice of one of our very smart consultants that worked with us on the program, and helped us to overall improve it—to survey the people that we invited to the program because the people on our invitation list were, and remain, a very focused group of senior level real estate executives,” said Jay Epstien, Chair of DLA Piper’s US Real Estate practice and co-chair of the firm’s Global Real Estate practice.
The survey coincided with DLA Piper’s 2014 Global Real Estate Summit held here in Chicago this past Tuesday. Many of the executives included in the survey attended as well.
“It was really terrific,” said Epstein. “We had absolutely fabulous, interesting, and engaging panelists. They were really good, and had a lot of interesting insights. I think people thought it was a wonderful day.”
In the survey real estate executives cited abundant supplies of debt and capital, as well as the steady strengthening of the US economy, as the top reasons they’re optimistic about the year ahead. Also, adding to the anticipation of free-flowing capital is the near-unanimous expectation that interest rates will either remain where they are or increase only slightly. Eighty-three percent of respondents said they expect interest rates to increase, and 73 percent of that group believes there will be no corresponding change to cap rates.
Respondents displayed a powerful consensus that the rise of flexible and collaborative office spaces will significantly shake up property markets; with 89 percent agreeing that the movement toward these types of spaces will impact the industry in a great number of ways, from the design and development of office buildings to the leasing market.
“While respondents to our survey gave serious credence to the emergence of the open office, it’s important to note that this trend isn’t exactly new. What is new is the powerful consensus that open floor plans are here to stay,” Epstien said. “Our survey provides tremendous insight into where the real estate world is today and how its leaders view where they’re going in the foreseeable future.”
Other highlights from DLA Piper’s 2014 Survey include:
• 24 percent of executives believe that crowdfunding will become a significant source of commercial real estate investment in the next three to five years, and 30 percent, are neutral. This could indicate that they’re simply unsure – but it would also appear to signal that they’re not ready to write off this innovative form of financing just yet. • More than 80 percent of executives surveyed expect the rise in e-tailing and e-commerce to affect the real estate markets in the retail sector. • 89 percent of respondents believe Janet Yellen’s position as chair of the Federal Reserve will have some type of an impact on the direction of interest rates. • A full 89 percent of executives feel “bullish” about the next 12 months, according to the survey. This is a big improvement over 2011, during the early days of the recovery, when only 30 percent were bullish. • Healthcare assets, such as hospitals, medical office buildings and assisted-living facilities, represent the most attractive investment this year, and multifamily and industrial space sectors round out the top three. • Foreign investors continue to see the US commercial real estate market as a safe haven for investment as well as diversification, and CRE executives believe that group will be the most active.
The complete survey can be found here.
