Overall, the United States is in a good position for 2015 with healthy real estate markets and economic growth. Despite global headwinds, the U.S. economy and real estate markets will improve at a faster pace over the next three years, a welcome trend after five years of below average recovery. Capital flows to real estate will remain very strong in 2015, with overall real estate transaction levels close to or surpassing the pre-recession peak. Both equity and debt will be plentiful, and lenders will become increasingly aggressive in deploying capital.
These positive prospects have Investors very bullish on the outlook for commercial real estate; they are backing up that confidence by investing more capital in U.S. Real Estate. According to LaSalle Investment Management's new 2015 Investment Strategy Annual (ISA) report, money will continue to flow into U.S real estate from across the capital markets worldwide. High on the list are Canada, Australia, China, Korea and Middle Eastern countries.
U.S. real estate is widely considered to be among the safest bets for long-term investors. Geopolitical conflicts in Eastern Europe and the Middle East have accelerated the trend of investors seeking a safe haven in the U.S. real estate market. Anecdotally, we hear about new investors in the U.S. market who place competitive bids that are 10 percent higher than the next-highest bidder. This may result from poor market knowledge, but in some cases, foreign capital sources are simply willing to accept current yields that are close to zero, on the idea that values will increase over their anticipated long hold period. Results from a recent Marcus & Milichap Investor Sentiment Survey show that a majority of respondents (70 percent) plan to increase their commercial real estate holdings over the next 12 months
The consensus is that global investment sales in 2015 will exceed $650 billion or more, with the U.S. getting the most attention by far. REITs clearly are contenders for properties and portfolios that meet their investment criteria, but prime assets in gateway markets are likely to end up in the hands of foreign investors willing to accept low current yields.
Some U.S. based pension funds are increasing their allocations to real estate as well, but these tend to be established players who understand market nuances and seek going-in yields of 4 to 5 percent. Those yields are low by historical comparison, but with interest rates also at historic lows, the spread between rates and yields still makes real estate a viable play. For investment advisors, the number-one concern right now is the impact on values if interest rates were to rise too quickly, thus resulting in a corresponding drop in property values.
Despite concerns that too much money could push yields to artificially low levels, so far we’ve seen little evidence of this happening. New development has been increasing, but the pace of construction is still well below the average over the past 30 years. So, while it’s important to beware of over-developing, there’s little actual evidence of it today.
Another positive sign, tenant demand is on the rise, U.S. corporate profits are high, and job growth has been steady. GDP growth has been slow, but steady over the past several years. Some market watchers believe this pace can be sustained for at least a few more years. A predictable slow-growth economy, resulting in further occupancy increases, rent growth and value gains, could add a counterweight of demand to balance out the rising wave of capital. Rising property values based on increasing cash flow is the ideal scenario for growth of commercial real estate.
These positive prospects have Investors very bullish on the outlook for commercial real estate; they are backing up that confidence by investing more capital in U.S. Real Estate. According to LaSalle Investment Management's new 2015 Investment Strategy Annual (ISA) report, money will continue to flow into U.S real estate from across the capital markets worldwide. High on the list are Canada, Australia, China, Korea and Middle Eastern countries.
U.S. real estate is widely considered to be among the safest bets for long-term investors. Geopolitical conflicts in Eastern Europe and the Middle East have accelerated the trend of investors seeking a safe haven in the U.S. real estate market. Anecdotally, we hear about new investors in the U.S. market who place competitive bids that are 10 percent higher than the next-highest bidder. This may result from poor market knowledge, but in some cases, foreign capital sources are simply willing to accept current yields that are close to zero, on the idea that values will increase over their anticipated long hold period. Results from a recent Marcus & Milichap Investor Sentiment Survey show that a majority of respondents (70 percent) plan to increase their commercial real estate holdings over the next 12 months
The consensus is that global investment sales in 2015 will exceed $650 billion or more, with the U.S. getting the most attention by far. REITs clearly are contenders for properties and portfolios that meet their investment criteria, but prime assets in gateway markets are likely to end up in the hands of foreign investors willing to accept low current yields.
Some U.S. based pension funds are increasing their allocations to real estate as well, but these tend to be established players who understand market nuances and seek going-in yields of 4 to 5 percent. Those yields are low by historical comparison, but with interest rates also at historic lows, the spread between rates and yields still makes real estate a viable play. For investment advisors, the number-one concern right now is the impact on values if interest rates were to rise too quickly, thus resulting in a corresponding drop in property values.
Despite concerns that too much money could push yields to artificially low levels, so far we’ve seen little evidence of this happening. New development has been increasing, but the pace of construction is still well below the average over the past 30 years. So, while it’s important to beware of over-developing, there’s little actual evidence of it today.
Another positive sign, tenant demand is on the rise, U.S. corporate profits are high, and job growth has been steady. GDP growth has been slow, but steady over the past several years. Some market watchers believe this pace can be sustained for at least a few more years. A predictable slow-growth economy, resulting in further occupancy increases, rent growth and value gains, could add a counterweight of demand to balance out the rising wave of capital. Rising property values based on increasing cash flow is the ideal scenario for growth of commercial real estate.
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