Commercial Real Estate: 2016 Market Outlook

Commercial Real Estate – “It is probable that global uncertainty will serve to keep interest rates low and allow for growth of fundamentals in the commercial real estate markets and in the broader domestic economy.” …

Commercial Real Estate:
2016 Market Outlook

Commercial Real Estate | 2016 Market Outlook | Steve Gaghagen | BrionCosta.com | Steve Gaghagen

Outlook Remains Positive As Capital Refocuses On Different Areas

When trying to predict the 2016 commercial real estate market outlook, one is faced with a dizzying array of contradictory factors. There have been some drastic changes in fundamentals over the last year or so, such as the decline of world financial markets. The current behavior of the Chinese markets is a case in point.

However, when all is said and done, the fundamentals of  the U.S. commercial real estate market are sound. The economy, for instance, is growing slowly but solidly. I’ve said many times that I’d rather see an economy growing more slowly than some would like than I’d like to see one growing too quickly and thereby falling into recession. Slow, solid growth is always more preferable than the “boom and bust” behavior we saw in some recent decades. 

What we’re seeing right now is the refocusing of capital away from areas now becoming too “pricey”, and towards areas that have yet to fulfill potential. Today I want to share with you an article by a real expert on this subject, Kevin Maggiacomo, President & CEO of Sperry Van Ness International Corp. (SVN). In this great analysis, Kevin points out some very interesting bits of information that are pertinent to us here in Southern California.

2016 Commercial Real Estate Market Outlook | SVN Blog

SVN Blog

2016 has started with higher levels of volatility in United States equity markets as a result of justifiably significant fears of global economic pressures causing falling demand domestically. While some investors are taking a fearful stance, we see a different outcome. It is probable that global uncertainty will serve to keep interest rates low and allow for growth of fundamentals in the commercial real estate markets and in the broader domestic economy. Furthermore, even in the event of a domestic economic slowdown, the global uncertainty could lead to lower interest rates and even greater inflows of foreign capital, supporting the domestic commercial real estate market (the current risk / reward proposition of U.S. investment is unbeatable).

Read More Herehttp://www.svn.com/2016/01/29/2016-commercial-real-estate-market-outlook/

California Commercial Real Estate Forecast

To me, the most interesting items in Kevin’s article are the lists of areas that were “hot” in property sales in 2015 as opposed to the ones he predicts will become “hot” growth areas during the coming year. He sees the major, well-known commercial markets like Los Angeles, San Francisco, and San Jose (speaking just of California here), being surpassed in terms of rate of growth by what we might term “secondary” areas like Orange County and the Inland Empire, along with areas of Central California.

These will be the areas for Commercial Real Estate investors to watch as we move into 2016.

Commercial Real Estate.

Commercial Real Estate in 2016: Commercial Market Forecast

Commercial Real Estate in 2016 – “Sustained job growth throughout the country and improving credit conditions are forecast to help keep commercial real estate activity expanding into next year …”

Commercial Real Estate in 2016:
Commercial Market Forecast

Commercial Real Estate 2016 | Brion CostaNational Association of Realtors 2016 Commercial Market Forecast

So, what can we expect of Commercial Real Estate in 2016? Most analysts have released their commercial market forecasts for next year, and they generally agree that we should see continued growth, but that prices may pull back a bit.

We’ve seen sustained job growth in all areas of the country, and credit conditions are also improving. Both of these have sustained and driven the commercial real estate market, along with the activity of foreign investors. NAR analysts are expecting continued moderate growth, but say that prices may pull back in major areas that have reached their peak. Foreign investors, who have been at the root of rising prices in many areas … like Southern California … are currently being seen to become interested in more moderately priced areas, such as those in the mid-west rather than the west or east coast. That change of focus, combined with expected rate hikes by the Federal Reserve, should work together to pressure prices in “topped out” markets downwards.

Some analysts cite economic forces that have held growth back a bit, but most agree that growing employment will pressure vacancy rates down. The only exception to this may be in the multi-family sector as large construction projects in the pipeline reach completion over the next few months, and the availability of units rises.

Here is a comprehensive breakdown by Adam DeSanctis of the National Association of Realtors

Moderate Expansion, Easing Prices Expected for Commercial Real Estate Markets | National Association of Realtors

Realtor.org

“Even though rising occupancy and rents will continue, property prices are forecast to decline slightly in 2016 as the Federal Reserve starts to raise interest rates. With cap rates already compressed to very low levels, Yun anticipates short-term rate increases in December, and then again in March, which could slightly temper market growth. However, investments are still expected to continue on an upward trend.”

Read More Here: http://www.realtor.org/news-releases/2015/11/moderate-expansion-easing-prices-expected-for-commercial-real-estate-markets

Southern California Commercial Real Estate in 2016

The Southern California Commercial real estate market is one of those that has been pressured by the foreign investor and is a prime candidate for the future action described in the NAR report. Expect continued, moderate growth with falling vacancy rates but possibly lower prices.

Happy New Year!

Commercial Real Estate in 2016

Southern California Real Estate: Apartment Rental Rates Rising

Southern California Real Estate:
Apartment Rental Rates Rising

Southern California Real Estate | Brion CostaGood News For Investors … For Renters … Not So Much!

There are at leasttwo sides to every equation, and in the world of real estate things are no different. Today we’re going to look at rental rates … which are rising for a variety of reasons. That’s good news for investors on one hand … they are getting more return. It’s not such good news for Renters, many of whom are getting priced out of higher priced markets like San Francisco.

There are a variety of forces comvbining to bring about this trend. When the real estate market crashed in 2007 many homeowners lost their homes and were forcedinto the aparment rental market. During the credit crisis that followed, many developers could not get loans and construction of new multi-family units ground to a halt. Nowwe have the end result ofthat: a market with more people wanting to rent and not enough units available in most markets. Thus higher rents.

To look at the trends in detail, here’s a great article from Alex Veiga,  AP Real Estate Writer, as it appeared just the other day in the Alliance Review:

Growing demand for US apartments pushing up rents – The Alliance Review

http://www.the-review.com Fri, 11 Apr 2014 07:01:00 GMT

The Picerne Group is among the apartment complex owners with buildings under construction. The company, which owns properties in California, Arizona, Nevada and Colorado, expects to break ground soon on luxury rental buildings in the Southern California cities of Cerritos and Ontario. The buildings, which have nearly 500 units combined, are due to open next year, said Brad Perozzi, managing director of the company, based in San Juan Capistrano, Calif. “We definitely see demand improving, especially the younger demographic coming out of college and being in their prime renter years,” …

Read More Here: http://www.the-review.com/local%2520real%2520estate/2014/04/11/growing-demand-for-u-s-apartments-pushing-up-rents

Savvy Investors Still Have Time!

As you can see by the article, the experts do not expect the trend to “peter out” anytime soon. Once again, this is good news for potential investors. If you’re looking for a reliable place to invest, the Southern California multi-family real estate market might be a very good place to look. In our office we specialize in commercial development and commercial investments of just this type of property. Contact us with any questions or if you’d like to discuss the possibility of investing in Southern California multi-family real estate.

Real Estate Values: Two NY Buildings Sell For $1 Billion +

Real Estate Values:
NY Commercial Posts Two Huge Deals

New York Commercial Real Estate Values

Commercial Real Estate Values In The Big Apple
Have Regained Losses And More

There's interesting news regarding commercial real estate values coming out of New York this morning. Two high-quality commercial building in the Big Apple are in escrow for a total of over $1 Billion. At $933 and $1,300 per square foot, these two sales are more good news concerning commercial real estate values in New York and, by extension, the markets in other similar cities as well … such as Los Angeles.

As we all know, when the values downturn happened a few years ago, commercial values went south with everything else. The economic downturn affected every sector of the real estate market … and everything else as well. Now, however, it can be said that in New York at least, which is a leading market and a fairly good indicator of what similar cities either are experiencing now or will shortly experience, quality commercial property has regained the losses incurred during the downturn … and then some.

Here's an article by Ilaina Jonas in Reuters with the particulars:

Two midtown Manhattan buildings to sell for more than $1 billion

"Top-quality buildings have more than recovered the value they had lost in the downturn that followed the financial crisis of 2008. In April, the Green Street CPPI All-Property Index. which measures values of high-quality U.S. commercial real estate …"
http://www.reuters.com/article/2013/05/08/us-usa-property-manhattan-idUSBRE94717J20130508

What This Means To Commercial Real Estate Values
In The Near Future Is Still Difficult To Predict

So commercial real estate values have pulled up and over the levels of what they were before the downturn. At least they have in New York. Does this mean the "all clear" has sounded? No. Not really. While this is, of course, good news, analysts disagree as to where things go from here. Some believe that prices have risen too far and too fast, creating a market that is somewhat overblown. Others argue that as long as interest rates remain at historically low rates, prices will continue to rise as investors are will to take on more "cheap money" debt. So the feeling is we're either looking at a coming correction in commercial real estate values or a continued rise in prices.

Either way, if we take the long-term view, we can consider both to be good news. There is no sign that values are in a true "bubble" situation … where things could simply blow up and crash. No one expects that. A "correction" at this point simply means a slowing of the rate at which values are rising, and possibly a downturn of sorts for a period of time before real estate values begin to climb again. That's simply a healthy market balancing itself out, and not something to be feared. Whether we get a few months of correction or we don't, it appears that commercial real estate is becoming a healthier market than we've seen in a long time.

Real Estate Values.
 

Los Angeles Commercial Real Estate – Redevelopment Starts More Modestly

Los Angeles Commercial Real Estate:
Grand Avenue Development Project

Los Angeles Commercial Real Estate | Grand Avenue Project

Grand Park covers 12 acres in downtown Los Angeles, from Grand Avenue to Spring Street. It is designed to host concerts and other performances.
(Photo: Monica Almeida/The New York Times)

Los Angeles Commercial Real Estate Sees A Simple Start To A Bold Redevelopment Vision

Rather than sending shockwaves through the world of Los Angeles Commercial Real Estate and beginning the project with a huge commercial building, the new Grand Avenue Development Project just got off the ground with the opening of "Grand Park", a twelve acre area that replaces the old "Civic Center" with new and very attractive open space. BUT … the project has begun, and there is much more to come, if they can get it right

Here's an article from the New York Times by Peter Slatin that describes the entire thing …

Simple Start of a Bold Vision for Downtown Los Angeles

"LOS ANGELES — Community leaders, real estate magnates and urban planners hope the Grand Avenue Development Project, which would add several million square feet of commercial and cultural space, will provide a center of gravity and excitement to an area of the city that has lacked both." … NY Times
http://www.nytimes.com/2012/11/28/realestate/commercial/simple-start-in-overhauling-downtown-los-angeles.html

Los Angeles Commercial Real Estate Market Dictates What Comes Next

The original plans that the Grand Avenue Development Project put forth call for innovative use (for the area) combining multi-use commercial in a grand scale (pardon the pun). However, realities of the Los Angeles Commercial Real Estate market … such as the almost non-existant condo market … will force accommodations and compromises to be made. Here's hoping the developers will get it right … and that the market supports them.

Los Angeles Commercial Real Estate.
 

Commercial Real Estate: Architectural Firm Billings Up

Commercial Real Estate:
Archtectural Firm's Billings Are Up

Commercial Real Estate | Costa Real Estate Digest

Architectural Firms Increase Billing In Good News For Commercial Real Estate Market

One of the leading indicators of commercial real estate … the billing activity for architecture firms regarding commercial real estate structures … shows some good news for the market. This Business Insider report tells us that "Billings at architecture firms accelerated to their strongest pace of growth since December 2010."


This is good news for the commercial real estate market, but there is a long lag-time in this indicator … the time between completion of design and actual sale of a project can be as long as two years. This would indicate that commercial real estate is not yet out of the doldrums, but could be heading there.

A Key Leading Indicator For Commercial Real Estate Hits Its Highest Level In …

"Billings at architecture firms accelerated to their strongest pace of growth since December 2010. " … Business Insider

http://www.businessinsider.com/aia-architecture-billings-index-increases-in-october-highest-in-two-years-2012-11

Actual Commercial Real Estate Not Out Of The Woods Yet

It should be noted here, that most of this increase in billing by architectural firms relates to design of multi-family residential units. We know that demand in this area is on the upswing as large numbers of families have been displaced as "homeowners", and are now in need of rental properties as residences. The need for building design has so far been in this area, and is not yet a reflection of overall demand in the area of commercial real estate.

Commercial Real Estate

Commercial Real Estate: Fresno Among 5 Least Expensive Markets

Commercial Real Estate:
Fresno Among 5 Least Expensive Markets

Commercial Real Estate | Fresno Operation Costs Among Lowest

Fresno Commercial Real Estate
(Photo – The Business Journal)

Annual Report Aggregates Rental Income & Operating Expenses From 125 Commercial Real Estate Markets

A report on the expense of operating commercial real estate properties in 125 cities in the US comes from the Building Owners and Managers Association. It found that the California city of Fresno is within the top five least expensive commercial real estate markets … as far as actual operational costs are concerned.

Here is all the information in a report found in the Fresno Business Journal written by the Business Journal staff:

Report: Commercial real estate costs low in Fresno

"View Comments. Commercial real estate FresnoA report by the Washington, DC-based Building Owners and Managers Association, shows that Fresno is within the top five least-expensive commercial real estate markets in regard to total operating expenses."
http://www.thebusinessjournal.com/news/real-estate/3081-report-commercial-real-estate-costs-low-in-fresno

Most Expensive commercial Real Estate Operation

The report also found that the most expensive cities in which to operate commercial real estate were New York, San Francisco, Washington D.C., Boston, and Los Angeles. It found, as well, that operating expenses increased nationwide as a general rule, but that income from rents also increased. All in all, this indicates a balance in the commercial real estate market.

Commercial Real Estate.
 

Nashville Commercial Real Estate Sales Up 218 Percent

Commercial Real Estate:
Nashville Commercial Sales Up
In 2nd Quarter

Commercial Real Estate | Costa Real Estate Digest

Nashville Commercial Real Estate Closing (Photo www.nashville.gov)

Nashville Commercial Real Estate Sales Up 218 %

There are still pockets of bad news in the world of commercial real estate, but more and more good news is appearing everywhere you look. In our effort to keep an eye on what's happening nation-wide and, indeed, world-wide, we've posted this report about commercial real estate sales in the Nashville area.

This report is based on a new report just out that shows Nashville commercial real estate really jumping up in activity. Activity is always a good indicator of market confidence, and this is no different.

Read about it here in the Nashville Business Journal:

Nashville commercial real estate sales up 218 percent


Nevin Batiwalla – Staff Reporter- Nashville Business Journal – "There were 102 transactions totaling $179 million in Davidson County for the quarter. Both are the highest totals Nashville has seen in the second quarter since 2006."

http://www.bizjournals.com/nashville/news/2012/08/27/nashville-commercial-real-estate-sales.html

 

Commercial Real Estate Is Down From The "Boom"
… But Moving Up From The "Bottom"

One of the most important things to look for when analyzing the commercial real estate market is momentum. The fact is the market is moving forwards and upwards now. It is no longer languishing at the bottom, but is showing signs of upwards momentum. That's a good sign, and commercial real estate investors are aware of it.

Commercial Real Estate.
 

Commercial Real Estate: USA Is Still The Safest, Most Reliable Investment

Commercial Real Estate:
USA Is Still The Safest, Most Reliable Investment

Commercial Real Estate | Multi-Unit Development

Commercial Real Estate Investors Say They're More Confident With their Money In The USA

Here in the USA we tend to be preoccupied with our long struggle to right the economy, and those involved in commercial real estate are not immune. Eventually, we can develop blinders on our vision that can prevent us from seeing the Big Picture. The fact is, commercial real estate investors, who can choose to invest here, in Europe, the Middle East, or in Asia, still say their preference is in the USA for various reasons.

In this article in the Atlanta Business Chronicle, Steve Berman describes his experience at a recent conference of commercial real estate investors and professionals held in Israel.

Investors confident in US real estate, especially multifamily

Atlanta Business Chronicle – Steve Berman – "The investment profile of the United States is still viewed as the safest risk in the international market place and that the multifamily market, in particular, is viewed as the most favored asset class. …"
http://www.bizjournals.com/atlanta/real_talk/2012/08/is-the-multifamily-boom-sustainable.html

Multi-Family Units Drive Investors Interest In Commercial Real Estate

It's no surprise that commercial real estate investors are looking at the recent performance of multi-unit residential housing and feeling their confidence grow in this type of investment. With the huge rash of foreclosures we've been experiencing over the last few years, this type of housing has become more and more in demand. People are looking for apartments nationwide, and new units are being constructed daily.

This sector of the commercial real estate market has always been one of the "market leaders", and is fulfilling that role again now. As the market "shakes out", the other sectors will eventually follow. Here's hoping that's sooner rather than later.

Commercial Real Estate 
 

Commercial Real Estate: Austin, Texas Sees Increased Demand

Commercial Real Estate:
Austin, Texas Sees Increased Demand

Commercial Real Estate | Costa Real Estate Digest

Downtown Austin Office Space (Casey James/KXAN)

Commercial Real Estate Figures Are Good For
The Market … Not So Good For Tenants

The Commercial real estate market is seeing good numbers in general nationwide. But, like all market, for every upside there is a downside. What's good for the goose might not be as good for the gander. For instance, demand for commercial real estate space is up in Austin, Texas. That is good news for builders, developers, brokers, investors, etc. It's not as good news for tenants as their choices narrow and their rents increase.

Here's a report from Casey James of KXAN Austin News, the NBC affiliate in the area.
 

Austin office space inventory shrinks

Casey James – "Chris Oddo of Don Cox Commercial Real Estate said the burgeoning demand is driving up leasing prices. In 2011, office space were renting for $126 a square foot. This year, the same space is going for $180." … KXAN Austin News
http://www.kxan.com/dpp/news/local/austin/austin-commercial-real-estate-facts

Commercial Real Estate Space Available For Rent Dwindles
As Former Renters Purchase

The good side of this story is that much of the commercial real estate space inventory that is disappearing is actually being purchased by former renters. When they see their rents climbing because of high demand, many are figuring out that with market conditions as they are … with prices to purchase and interest rates so low … they could be doing better by purchasing their space instead of renting.

Sound familiar? It seems a situation that many of us remember seeing in the housing market is now taking place in the commercial real estate market in various parts of the country.

Commercial Real Estate