BDO Forecasts RE Trends for 2014

BDO USA revealed its outlook for real estate in 2014, noting that the year has started with gradual improvement and will most likely continue steady growth throughout the next 12 months.
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Stuart Eisenberg, of BDO

BDO USA revealed its outlook for real estate in 2014, noting that the year has started with gradual improvement and will most likely continue steady growth throughout the next 12 months.

“The outlook is pretty good, with better availability of equity and financing, and there’s interest in going outside of prime and super-safe markets to do deals,” Stuart Eisenberg, partner & real estate practice leader at BDO USA, told Commercial Property Executive. “People are keeping an eye on what’s going to happen with interest rates—will it move up dramatically or not?”

According to Eisenberg, interest rates continue to give people pause, as they provide a level of uncertainty to the real estate market. However, many industry professionals have been bracing themselves for the impact of rising interest rates and adjusting to what will be the new normal.

 

“There doesn’t seem to be an expectation that it will move dramatically upwards or there will be a large increase over the next year or two,” he said. “Depending on how quickly they rise, one possible outcome to watch for is an inflationary response, which could result in landlords charging higher rent rates for retail and multi-family spaces.”

One area to watch for is in prime versus non-prime markets. In 2013, investors and developers chased good assets, as opposed to focusing on gateway markets, with cities such as Houston and Austin seeing some notable activity. Eisenberg predicted this shift towards acquiring solid assets in secondary markets will likely continue to be a driving force within the industry.

“I think they offer a more upside to the investors because markets like New York, San Francisco and Boston, the prices are so competitive, so you’re looking at lower yields,” he added. “As far as other cities to watch, Miami looks very good and has a lot of activity. Seattle has had some good interest as well.”

Generation Y will have a hand in what happens in 2014 as mixed-use properties shifted strongly into focus in recent months due to this segment.

“Analysts are seeing more and more interest outside the non-suburban markets. The desire of these individuals to live, work and play in the same place created a demand for these type of properties,” Eisenberg said. “What remains to be seen is whether the desire and sustainability is there when these individuals begin to have families. Despite real estate operating on a hyper-regional scale, the broad short-term impact may be the transformation of suburbs into mini-urban environments.”

Another strong factor in the ongoing demand for mixed-use prosperities is that the ageing baby boomers and empty nesters are also finding this type of living desirable.

BDO reported another trend to watch for is that private equity may scale back in its acquisition of single-family homes and focus on their exit strategies. It will be important to watch how the investment cycle plays out, as a typical private equity investment often has a five-year exit cycle, while a 10-year cycle or longer is more standard in real estate.

Other trends Eisenberg mentioned include suburban office space facing challenges, but showing potential for growth; the CMBS market continuing to improve on its 2013 growth; and safe investments in single-tenant commercial buildings continuing to be sought after, despite a lack of supply.