Commercial real estate asset managers project improvement in the sector

Jessica SarterCommercial Lending

In recent months, many regions have reported significant improvements to commercial real estate prices and occupancies. Many experts have viewed the current market to be extremely ripe for the taking, as costs fell 30 percent nationally, following the most recent recession, and are only now beginning to show improvement.

Locking in leases and purchasing new office space will ensure low rates and higher returns on investment as the sector continues to improve. One recent report found that commercial real estate managers believe that there will be a significant improvement to occupancy rates in the coming years.

CorNet Global, a corporate real estate association, recently released its Corporate Real Estate 2020 survey, which projected substantial improvements in the U.S. manufacturing sector through the next eight years. The study questioned commercial real estate asset managers around the nation on several aspects of the state of the sector.

According to the report, slightly more than half of respondents believed that a recovery in the manufacturing sector is imminent, and that it will be largely the result of more businesses choosing to stay onshore, as well as many that are already abroad bringing their operations back to the United States.

“On-shoring in the U.S. will continue to gain steam due to changing global cost and supply chain dynamics,” Dennis Donovan of WDG Consulting – a national expert on site location decision-making and participant in the CRE 2020 research – explained in the report. “The U.S. and its manufacturing base is more competitive than at any time in a generation.”

CoreNet cites several assumed drivers of this return to the United States, such as rising employment costs in China and other Asian nations, as well as a steep increase of relocation and product transportation costs.

“The labor cost arbitrage will likely diminish as a primary strategic driver as urbanization and industrialization trends in developing nations run their course,” explained Chris Horblit, a member of the CRE 2020 research team, said in the research report. “This, combined with ongoing security and quality concerns, as well as rising costs to transport goods and people, may well spark a marked turn to [on-shoring] by 2020.”

In a separate report, the Mortgage Bankers Association recently released its analysis of commercial real estate lending in 2012. The study revealed that commercial real estate loans for retail and hotel properties fueled the growth. The former saw a 56 percent year-over-year increase in loan volumes by dollar amount in the second quarter 2012, while hotel property loans experienced 22 percent growth.

These signs point to an impending expansion of commercial real estate purchases, which further illustrates the fact that now is an excellent time to get moving on real estate acquisitions.

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