2014 Real Estate Forecast for Office, Multifamily, Retail, and Industrial Properties
Integra Realty Resources (IRR) has released their annual commercial real estate forecast highlighting expected trends for office, multifamily, retail, and industrial property types. This report examines real estate valuation, investments, and expected leasing trends that could occur in the aforementioned areas. IRR estimates that all real property values will increase over the next three years.
The office sector is experiencing the most disparate sales and leasing performance compared to other property types. Some markets are experiencing growth and expansion, while others are struggling with continued recessionary performance. Markets experiencing growth are postulated to be due to an increase in localized demand, which may not be met with steady supply. Office sale prices were higher in cities such as Austin, Charlotte, Houston, and Nashville. Offices sale prices dipped in areas like Boston, Miami-Palm Beach, Orange County, and San Diego.
The multifamily outlook includes a discussion regarding Class A and B properties. Multifamily properties continue to see decreases in capitalization rates in suburban and urban markets in the western region of the US. The south is experiencing signs of stabilized cap rates, with some Class A urban and suburban properties rising 17 and 18 basis points in 2013. The central US region is the only area where Class A suburban properties are seeing higher cap rates against their urban counterparts. Class B performance remains normal in this region. 2013 showed an increase in average sales price per unit compared to 2012 figures with the most active markets including Los Angeles, New York City, and Washington D.C.
The retail side saw notable transactions in high-end properties. The Apple Store and One Union Square sales aided in driving up the average retail sale price in San Francisco by 100% compared to historical averages. Retail vacancy rates dropped from 9.04 percent in 2012 to 8.42 percent in 2013. This reduction in overall retail vacancy rates is noticed more in the largest retail markets of the country. It is projected that vacancies will be filled allowing for gains in rental rates for the retail sector for the next three years.
It is projected that the industrial sector will recover from recession lows faster than previously expected. However, the number of vacancies being filled will fall as new industrial inventory is created. The economy will struggle to match this renewed supply with new manufacturing jobs to meet demand. The five markets that exhibited high industrial activity include Dallas, Houston, Los Angeles, Northern New Jersey, Orange County, Sacramento, Salt Lake City, and St. Louis. Most of these markets experienced little to no price changes, however Dallas and Houston exhibited an upward trend in year-over-year average price shifts.