Why Are CRE Execs So Happy?
- Jun 03, 2015
Commercial real estate executives are feeling much more confident about the market this year with nearly 60 percent saying they are more optimistic than last year, according to the sixth annual Akerman U.S. Real Estate Industry Outlook Survey released today.
The report, conducted by Akerman L.L.P., a top 100 United States law firm serving clients across the Americas, found CRE professionals surveyed this year had the most positive assessment of the U.S. economy than they have had in years.
First conducted in 2010, the Akerman Survey has become a leading source for market intelligence in the real estate industry. This year, 176 telephone interviews were held with Akerman clients and other top real estate executives across the U.S. The results highlight market indicators, including capital availability, investor trends and key drivers of growth.
The survey found improvement in the U.S. economy (39 percent), low interest rates (23 percent) and the availability of equity capital (15 percent) are contributing to the confidence levels of those interviewed.
The job recovery remains a top concern for the executives with five out of 10 saying employment in 2015 “will either be marginally or significantly higher than in 2014, a strong indicator of economic growth.” Nearly 30 percent of the respondents said the ability to create well-paying jobs will have the most impact on real estate development over the next three years.
The survey found more emphasis this year on foreign investments in U.S. cities and a greater concern with the global economy, both signs of the increased globalization of the commercial real estate industry.
“An increasingly competitive landscape and a volatile global marketplace create new challenges for our real estate clients,” Richard Bezold, chair of Akerman’s Real Estate Practice Group, said in a news release about the survey. “We use the Akerman Survey as an opportunity to start a dialogue about these important issues and bring clarity to key trends and business opportunities anticipated in the months ahead.”
For the first time in six years, Akerman Survey respondents are more concerned about the global economy (23 percent) than lawmaker decisions in Washington, D.C. Last year, nearly 34 percent cited governmental policies as the most pressing issue facing the U.S. CRE industry compared to 15 percent this year.
“Real estate markets are becoming more globalized, and the potential for disruption may be increasing,” Eric Rapkin, a partner in the Real Estate Practice Group, added in the release. “At the same time, cycles seem to be getting shorter and have more short-term volatility as a result of globalization.”
Global unrest abroad may be helping the U.S. markets as foreign investors are expected to be one of the top three sources to fund commercial real estate debt and equity in 2015, according to the Akerman Survey. The executives also cited banks, more than any other funding source, and insurance companies. They also believe that funding will also come increasingly from non-traditional sources such as CMBS, private equity, REITs and pension funds. The report points to the growth of crowdfunding as one example of the diverse lending environment.
“The sources of capital are very diverse,” Andrew Berman, a partner in the Real Estate Practice Group, noted in the release. “There are any number of different and innovative ways that people are financing transactions, and that seems to point to a positive outlook.”
Another key trend is what the survey calls ‘new urbanism’ – the aging of the baby boomers and arrival of millennials in the workforce and the growing preference of both to live in city centers. That is reshaping the real estate market as 34 percent of the executives noted this changing lifestyle preference will have the most significant impact on development in 2015 and following years.
The aging population is also leading to another growing trend, the ‘longevity dividend.’ The survey noted that 26 percent of executives believe this trend will have the most impact on real estate development, particularly on the seniors housing and healthcare real estate sectors.
More than half (58 percent) of the respondents believe the multi-family sector will continue to be the strongest asset class. Seven out of 10 agree apartment development will be the strongest growth driver, while 17 percent said it would be senior living facilities and 11 percent felt it would be condominiums.
The survey also found that foreign investment would be most active in the multi-family sectors with most of the capital (50 percent) coming from China. In fact, Chinese investors are expected to be the dominant foreign sources of capital in all asset classes except single-family homebuilding, which the respondents said would get more Latin American funding.
For the first time in 50 years, U.S. executives noted they are considering real estate opportunities in Cuba now that the Obama administration is normalizing relations between the two countries.
Some secondary U.S. cities are also getting more investor attention and that is expected to continue, according to the survey. These hubs often provide the kind of high-paying jobs that are leading to a real estate renaissance for some tier two cities, the report notes.