Commerical real estate has taken a beating during the prolonged downturn, but analysts see better times ahead.
The commercial real estate market has been hard hit by the nation’s prolonged economic downturn, but analysts predict the market will steadily improve in 2012 and 2013.
Growth will continue at a sluggish pace, but the U.S. economy will create about 3 million to 4 million new jobs over the next two years, said Lawrence Yun, chief economist for the National Association of Realtors. Yun predicts that the slow improvement in job growth and other positive economic factors will bolster the commercial real estate market and the broader economy. The nation will avoid a second economic recession in the near future, partly due to the weaker American dollar, which has fueled an expansion in U.S. exports and foreign investment in U.S. real estate.
The strongest real-estate sector remains the multi-family apartment sector, said Yun. A decrease in vacancies is causing rents to rise across the country. Increased demand for rental housing has been created by fallout from the housing crisis. Former homeowners who lost their houses to foreclosures and short sales have been driven into the rental market, and many prospective homeowners continue to rent because they’ve been unable to obtain credit in the current tight lending environment.
The commercial real estate market has begun to attract affluent American investors, as well. Real estate has played a historic role in wealth creation, but faith in real estate as a stable financial asset has been shaken by the recent market crash, according to a March survey by Millionaire. More than 60 percent of high-net worth millionaires – those with $5 million to $25 million (excluding primary residence) – said the recession has taught them that their home is not a stable investment. These affluent investors have seen their home values decline, but they are also starting to see attractive valuations in commercial real estate. More than 16 percent of high net worth millionaires said they have purchased property recently, but are most interested in investing in commercial real estate, including the rental market.
Virtually all high net worth investors own their primary residence, and more than half (54 percent) own a second home. Nearly 45 percent own rental property, while 30 percent own raw – or undeveloped land. One-fourth owns commercial property and 3 percent has invested in property overseas. Real estate is considered an alternative investment and, like all investments, carries risks. Wealthy investors use real estate as a hedge against inflation and a source of income. Some investments can be structured to offer tax advantages, as well.