Commercial Real Estate Overcomes Economic Inertia in 2014
“Cautiously optimistic” isn’t just a trendy economic catch phrase, it will be a way of life for real estate’s foreseeable future. Where 2013 saw big gains in housing prices, 2014 could prove to be the year where a healthy and sustainable housing market emerges, one with fewer incidences of foreclosure and mortgage distress and increased construction and sales.
As we’ve learned time and time again (and in some ways more painfully than others), the real estate market and, in particular, housing, remains as one of the largest forces in the overall health of the economy. And a flourishing housing market, while within reach, is still very much in an impressionable state at the moment. On a buying and selling level, rising interest rates may impede housing prices; slow job growth will impact home availability and commercial demand. Ongoing congressional dysfunction could also gum up the process as fiscal and government policy changes could thwart any current gains.
On a positive note, multi-family remains a force to be reckoned with, closely followed by industrial properties. As one can expect, office and retail real estate will recover with the job growth, which is also plodding along at a steady, but reassuring, tortoise pace.
One of the most reassuring indicators of economic recovery is the availability of capital. Financial institutions are starting to dip their toes back into the lending pool. Armed with stringent underwriting, banks are now more willing to compete with each other for choice assets and well-positioned sponsors. Secondary markets will benefit from large capital players looking to expand their portfolios.
Of course, investors must prepare themselves to release the idea of “pre-recession peaks” as a litmus test for success. The strength of the recovery lays in its sustainability, where slower, steadier gains will ultimately prove to be more rewarding than brief, delusive spikes.