Major shifts have taken place in the commercial real estate industry, which is transforming from a highly localized, deal-driven business to an international market characterized by lower transactions costs, abundant information, lower risk premiums and increasing sophistication.
GDP growth of around 3 percent may fall short of the 4 percent to 5 percent growth seen in past recoveries. This has implications for commercial real estate (CRE): like most investments, CRE typically performs better when the economy’s wind is at its back.
As 2014 gets underway, David Lynn, Ph.D., executive vice president and chief investment strategist at Cole Real Estate Investments Inc., takes the opportunity to make five bold predictions for the year.
Commercial real estate has posted three-and-a-half years of robust total returns, attracting significant inflows of investment capital. At this point we may want to begin to fear our own good fortune, as there is nothing worse than free-flowing capital to encourage over-development which tends to kill the party.
Prices for real estate, like any other economic good, are a function of supply and demand. Since each market has different underlying demand drivers and supply constraint characteristics, investment returns vary.
When combined with access to a strong population base, reasonable barriers to entry that keep supply in check and an efficient transportation and infrastructure network, distribution facilities in global gateway ports may present a compelling opportunity.
I’m often asked for an ex-post review of my prognostications. I can’t disagree because, after all, it would be rather disingenuous to provide forecasts without any degree of back testing. So how accurate was I in 2011? Where did I get it wrong? We’ll see below.
Demography is a critical driver of real estate demand. Population growth in the world rapidly accelerated in the 20th century and is still increasing. While the growth may be leveling off in some industrialized countries, it is still robust in most countries.