I just posted a new pdf report entitled “6 Commercial Real Estate Investing Predictions for 2013 and Beyond” and thought you’d like a quick summary of what’s inside.
What do you see happening this year?
Vacancy rates falling and rents firming
All are solid predictions Jeremy. I think the least likely is #1 because investors always want to make more and more money so in my mind a tax increase will not deter them too much. As long as confidence is rising, the markets will continue to see robust growth.
I believe #3 and 5 go hand in hand because as employment and confidence improves there will be demand for office space and retail sales will improve. The fiscal cliff negotiations and election scared people but with that uncertainty removed it should help the climate going forward.
#1 and #2 are conflicting. Besides, if you read any major, reliable real estate reports you’d know that rents, while still increasing, are growing at a slower rate than they were at the beginning of 2012 (seasonally adjusted). Almost every major institutional pundit believes this will be the trend in 2013 and into 2014… What makes you believe the multifamily space is going to be heating up in “2013 and Beyond”?
In my opinion the apartment market will see growth but a lot of hinges on how many new buildings come online in 2013. One of the reasons why we saw huge rent gains in 2010-2012 was due to lack of construction, there was none. As payrolls increase and expand, new households will form with the majority probably going to apartments unless the banks start easing lending standards for homes.
Check out this link I saw on Reuters.
http://www.reuters.com/article/2013/01/08/usa-apartmentmarket-reis-idUSL1E9C78YC20130108
Apartment demand increased towards the end of the year.
I agree that the multifamily market will grow, it will just grow at a slower rate than it has over the past 2 years. The period-to-period percentage rent increases will slow, which is why I said that it will begin cooling off. REIS may show lower vacancy rate for 4Q, but if I’m not mistaken REIS, CBRE, MPF, and other major multifamily market analytic services reported a lower seasonally adjusted rent increases in December. That article sites a senior analyst from REIS: “The market has tightened considerably over the last few years and at this point in the cycle a slight slowing should be anticipated”.
I think we’re saying the same thing, which is that multifamily is strong, and will continue to stay strong for a few years, but due to various factors (new product coming online, we’re approaching the pricing ceiling for rent increases, rent vs. own calculus, etc…) rents will begin slowing down. They’ll still go up, just not as much as they have been in the last few years.
It is tough to gauge growth for multifamily for the next couple of years because a lot of it depends on how many new properties come online. If there are less headwinds in the political/economic sphere then that might not bode well for multifamily.
I see #1 as the least talked about, but top of mind, issue in the commercial real estate investing space because too few of us look at deals in a post tax world. If the IRS, your partner up to 40% of your profits, takes more money, then you have to pay less for your investments in order to drive the risk adjusted returns that you are looking for.
Issue #2 remains hot because as long as mortgage underwriting for home owners remains somewhat onerous and we continue to adjust to a 64% owner rate across the U.S., apartments will remain in demand. Even as supply enters the market, remember that assumable rates in the 3% range can be used for up to 40 years, and as rates increase into the future, that debt will become an asset. This financing is not available on other asset types like office, retail, and industrial properties.
One thing is for certain, real estate will still be up in the business. Thanks for the info.
Jeremy:
Only the past couple of months have I begun researching the commercial property industry. I have no background except on the leasee side. For several years I oversaw development of new office supply centers where I handled new build projects and several remodel buildout projects for supply centers and regular retail.
After being unemployed for 2 years I came across 2 property management and property investment companies who are now hiring candidates with strong business backgrounds to manage multi-family and commercial properties. Both companies told me they found people with business experience to be far better property managers than managers who have only managed multi-family or commercial properties. I’m not going to argue with that, since that’s me. I have over a two decades of experience in business management in several industries.
So after 2 companies (one multi-family and the other commercial property & multi-family) , working hard to recruit me, I was hired to be a commercial property manager. I begin my new career on May 6th.
Although multi-family asset management would have been very interesting my research shows commercial property management, in my case turning around a factory outlet mall, to be a better opportunity. Commercial real estate such as malls have been on the down side for a few years. I firmly believe thats the best time for me to enter a new work industry in order to make me a better comm’l property manager . I’d rather learn a new industry when that industry is in a bad economic period because it will make me a better well rounded manager.
My research and predictions show in a few years more people will find ways to start their new businesses in this strange economy. Larger national brands are already depreciated out their current store locations and are rebuilding in new locations. Multi-family industry, per my research, has been on the up swing since the real estate crash or since around 2007. Some new apartment buildings are being built but most multi-family investment companies are not building new units. Why? Having talked with quit a few companies they all said the multi-family industry will begin a decline in 2017. Some indicators are showing a decline to begin as early as 2016. The companies I talked with are expecting it. I think that’s why many multi-family investment companies are not expanding existing properties. Many I found are 95% to 100% filled and the owners are enjoying the cash flow not wanting to invest in new units just to see the market turn a few years after investing in new buildings.
Multi-family companies I researched, and interviewed with for jobs, all said 2017 (or a little sooner) is the time when the single family residential real estate market will be bouncing back. There will be a significant increase in single family home loans. People who filed for bankruptcy will have close to 7+ years behind them on their foreclosures and they will be able to requalify for single family home loans. A larger number of people will have finally recouped salary loses. (Isn’t that about the same time the whitehouse is due to change)
Jeremy I do have a couple questions if you don’t mind.
What does CCIM stand for?
I’m going to want to get a commercial property certification and complete a program. I’m really not interest in an online course although that might be the way I have to go. I don’t think a person learns as much than if they attend a classroom program. If I were to attend a certification program, and I will most likely only be able to attend one, "What certification should I go for? The one that will give me the most clout or recognition by other comm’l property companies. The one that will train me the best for a variety of commercial properties.
Thanks
Frank Van Dyne
Ok. As soon as I posted I saw the link on the left side of this web page where it has a link for the Investing Abbreviations and found what CCIM means.
CCIM - Certified Commercial Investment Member
Commercial real estate continues to improve at a moderate pace, much in line with our previous forecast update from six months ago.The greatest economic risk for commercial property owners is recession.