The US commercial real estate market is surging ahead, and bringing with it fresh opportunities for investors and business owners.
Chicago is among the leading US markets
Property owners are making improvements to buildings and tenants are seeking out new space to let. The most encouraging news for the market is that investors are once more seeking to put capital into the market.
The transaction volume in 2013 is expected to increase to $310 billion (£196.83 bn) from $290 billion (£184.13 bn).
This figure is expected to rise to $340 billion (£215.87 bn) next year and $360 billion in 2015 (£228.57 bn) in 2015, according to the Urban Land Institute and Ernst & Young (ULI/EY) Real Estate Consensus Forecast.
The leading three markets in the US by investment sales volume in 2012 were New York City at $30 billion (£19.05 bn), and Chicago and Los Angeles at $19 billion (£12.06 bn) each. Secondary markets experiencing high growth include:
Not all markets in the country are recovering at the same pace. There are still areas which have not yet stabilised. In certain areas, buyers can still find properties listed for prices below 2006-07 levels (and below their replacement cost). Since interest rates remain at historic lows, this is beneficial to buyers and creates more cash flow which can be passed on to investors.
Commercial real estate investors are seeing the opportunity to get into the market, and not all of them are institutional investors. Investing in high quality real estate can provide a steady stream of income for private investors and has been a hedge against inflation.
For a number of investors, choosing Class A office space is a good long-term investment. Commercial office space vacancy rates are expected to decrease to 14.8 per cent this year.
In 2014, they are predicted to drop to 14.1 per cent and fall to 13.6 per cent in 2015. Office space rental rates are expected to rise by a very healthy four per cent in 2014 and 2015, according to figures contained in the ULI/EY report.
Demand for high-quality properties is expected to remain high because there has been little new development over the past five years.
Properties currently under construction won’t be ready for occupancy for several months or even years so the current positive absorption rate is expected to continue. A number of tenants in office properties have signed leases with annual increases of two or three per cent, which provide investors with a reliable source of income.
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