Though economic conditions have remained turbulent in recent months, several sectors have enjoyed significant improvements this fall. The commercial real estate sector, which many experts believed would collapse following the housing crisis but never did, is now showing more marked signs of life across the nation.
Two recent reports revealed that commercial real estate experienced gradual gains thus far this year, with expectations leaning toward continued growth in the coming years. Though many experts are not entirely enthusiastic about a major return to pre-recession levels in the coming months.
PricewaterhouseCoopers releases survey results
PricewaterhouseCooper (PwC) recently released its Emerging Trends in Real Estate Forecast, which projects San Francisco to be the highest ranking U.S. city for development in the next year. According to the firm, marginal improvements will turn into marked gains for all levels of the commercial real estate industry, including pricing, rent and leasing.
The study, conducted with the Urban Land Institute, revealed that this year will close with significantly better commercial real estate conditions than 2011, while it attributes much of the success to rebounding employment and consumer spending. Both new constructions and occupancy rates are expected to grow in the coming fiscal quarters.
“With the outlook for commercial real estate continuing to improve in 2013, investors are expected to allocate substantial capital to the real estate asset class, according to our survey respondents,” Mitch Roschelle, U.S. real estate advisory practice leader at PwC, explained in the company’s release. “As yield in bonds and other financial instruments tighten in a still volatile market, commercial real estate’s income producing and total return attributes offer investors potentially attractive risk-adjusted returns.”
PwC further asserted that New York City, San Jose, Austin, Houston and Boston, along with San Francisco, will be among the best locales for commercial real estate developments next year. Finally, the study found development firms and real estate companies will likely first flood markets that have been doing better than others, such as information technology.
News provider offers similar sunny forecast
Forbes recently reported that it too expects commercial real estate to continue its rebound next year, focusing specifically on new construction activity. According to the source, operating incomes will push new constructions in various markets throughout 2013, and will eventually regain more significant steam in 2014 and 2015.
As occupancies continue to increase, Forbes believes construction of new office spaces will also rebound more substantially than in the last year, while custom building has become commonplace. Possibly the prediction with the biggest implications for small business owners, the news provider asserted that interest rates will remain somewhat stagnant in the next couple of months.
However, as the sector improves, interest rates and long-term mortgage rates will likely rise through mid-2013 and into the following years. Small business owners in need of commercial real estate should consider purchasing now while rates are low.
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