CHICAGO-Though the two major fundamentals, jobs and housing, are still shaky, there’s so much capital held back today that the next five years should see massive investment in the stability of commercial real estate, according to a joint report. The groups Real Estate Research Corp., Deloitte and National Association of Realtors put together the Expectations & Market Realities in Real Estate 2012 report.
Property has shown better returns in the long run than other investment vehicles such as stocks, and the product markets of office, industrial, retail and hospitality should inch upward this year in occupancy and lending, according to the report. Kenneth Riggs Jr., chairman and president of RERC, tells GlobeSt.com that uncertainty in the US political arena and the turmoil overseas in Europe and the Middle East should allow CRE to shine as a more stable investment.
“I think in the next couple of years we’re going to see the greatest capital infusion we’ve ever seen in a generation,” Riggs says. “We believe that commercial real estate is the new foundation to investment portfolios as we go back to the basics of investing.” He says there’s a number of CRE companies such as Clarion and Jones Lang LaSalle that are launching private REITs to literally capitalize on the massive amount of money sitting on the sidelines.
Much like the lack of development in the United States has led to absorption increasing, even while jobs are still way down, the lack of spending by companies and consumers is setting up this expectation of growth in the next few years. In 2010, for example, the total US economy as at $14.5 trillion, about equal to China, Japan and Germany combined – and that’s following the recession.
While fundamentals are keeping landlords from increasing rents in all property types except apartments, the office, retail and industrial markets are expected to shrink, even as the economy begins to expand. Also, GDP is about the same as it was in December 2007, even though there’s millions less jobs now.
Riggs says those figures, among other expectations, are the reason to believe that growth is on its way. “I think we’re going to come out of this a lot stronger than we were before,” he says.
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