Good Times in Q4 to Continue Rolling into 2015

It was a good quarter, it was a solid quarter. The final three months of 2014 proved positive in U.S. commercial real estate’s occupier and investor markets alike.
Simon Rubinsohn, RICS

Simon Rubinsohn, RICS

It was a good quarter, it was a solid quarter. The final three months of 2014 proved positive in U.S. commercial real estate’s occupier and investor markets alike, according to the most recent RICS U.S. Commercial Property Monitor. And with the economy’s continued progress, more of the same can be expected for 2015.

RICS, the Royal Institution of Chartered Surveyors, drew its conclusions from more than a few participants; responses were tallied from 1,062 companies and involved the office, retail and industrial sectors.

In the occupier market, the numbers increased and decreased in all the right categories. Per the survey, the Occupier Sentiment Index, which had already recorded a solid reading of +29 in the third quarter, saw a notable rise to +39 in the fourth quarter.  Additionally, there was a considerable jump in tenant demand in all three property sectors, while available supply dropped a bit in the industrial and retail sectors and held steady in the office sector. They’re all positive signs for property owners. As noted in the study, the solid occupier environment “is expected to record firm rental growth over the next three months.”

As for the investment market, the perfect storm is brewing for higher price tags. In the fourth quarter, the Investment Sentiment Index was positive for the 13th consecutive reading, rising to +36. Investor interest grew not only in the office sector, but in the retail and industrial sectors as well. And the availability of for-sale assets declined a tad, but declined nonetheless. The result: prices in all three sectors are anticipated to increase by a minimum of 3 percent over the next 12 months, according to RICS.

“Our numbers indicate that investment inquiries are now growing at the fastest pace since 2006 and this is being reflected in a pronounced rebound in development activity particularly in the U.S. office segment,” Simon Rubinsohn, RICS’ chief economist, based in London, told Commercial Property Executive. “However the long period of undersupply means that it will take some time to address the shortfall in good quality stock.”

Investor demand was only amplified by a lending community that grew a bit warmer. Approximately 56 percent of survey participants asserted that credit conditions had gone on the upswing–and not just in the U.S. “Credit conditions are continuing to improve in most parts of the real estate world but especially in Europe because of recent policy initiatives,” Rubinsohn added. “The results indicate the better credit environment is visible in 20 of the 26 countries that we have data on. The significance of this is that it suggests investors will have greater access to finance as 2015 progresses which is likely to support a stronger property market with yields continuing to push lower in most parts of the world.”

It appears collapse of the commercial real estate market is growing smaller and smaller in the rearview mirror.