And the survey says…
Commercial property’s steady recovery should continue well into 2013. This conclusion is part of a recent survey by financial services giant Jones Lang LaSalle. Their survey is an analysis comprised of responses from almost 500 real estate development pros.
Spurred by the Fed’s actions to pump money into the U.S. economy, as well as keeping interest rates low, thus making it easier for lenders to offer mortgages, commercial property investors have been taking advantage of the looser credit available, to invest in many forms of commercial real estate over this past year.
Signs of a healthier economy
Commercial tenants overall have been fiscally healthier, yielding less vacancy rates for property holders. In addition, growth is expected next year by companies who rent space, and both tenancy rates as well as overall rents will be on the increase, supporting a truly growing commercial real estate investing sector.
While there is still a preference for commercial property investors to buy in prime locations in large U.S. cities, secondary markets are also showing signs of increase as well. These markets include smaller cities, as well as suburban markets. And they are projected to continue increasing in popularity amongst investors in the coming year as well.
The most popular segments
In terms of types of commercial sector demand, the most popular by far has been multifamily housing. Forty-three percent of survey respondents felt this was their number one choice of investment. This includes not just multifamily houses, but apartment buildings as well. Due to the overall growth in the residential housing market this past year, tenancy rates have been on the rise, while vacancy rates have shrunk. Overall, this type of commercial real estate investing vehicle is now considered extremely stable and low risk.
The next greatest sector is the office building market. Twenty-seven percent of respondents felt this sector was their best bet for profits. However, office rental success was pegged largely to area. That is, for example, higher growth industries, like technology, were experiencing greater demand in Silicon Valley. So choosing the right area to invest was more important for continued growth here.
Industrial property investment ranked third among all sectors (at 14%), while retail came in fourth (at 12 %). Lastly, the hotel sector was seen as the most volatile of all markets, as hotel chains experience high debt ratios amid increased competition and a tighter marketplace.
The main factor most respondents of the survey were concerned about for the future remained the overall state of the U.S. economy. They were also concerned with the lack of job growth domestically, as well as the European debt crisis. All three elements could adversely affect the commercial real estaste investing market in the coming year.
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