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Experts share insight on outlook for real estate sectors and economy for the coming year
CHICAGO, Nov. 15, 2012 — The U.S. presidential election may be over, but economic uncertainty will continue to hinder corporate decision making and impede improvement in commercial real estate fundamentals well into 2013, according to Jones Lang LaSalle’s 2013 National Commercial Real Estate Outlook. Experts from the firm’s Research group presented key findings from the report in its annual media webcast event Tuesday.
“The election itself doesn’t clear the air of the uncertainty in the marketplace,” said Ben Breslau, Jones Lang LaSalle’s Americas Research Managing Director. “We have reasonable confidence that some, or all, of the fiscal cliff may be averted, but the Euro crisis may get worse before it gets better, and will continue to drag on global confidence and the U.S. economy into 2013.”
A recession is unlikely in 2013, Jones Lang LaSalle’s researchers concluded, but businesses, lenders and investors are still waiting to see how legislators will deal with the fiscal cliff, which consists of tax cuts set to expire at the end of the year and federal spending decreases scheduled to begin in January. Most aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act, too, will be implemented starting in 2013.
“It takes time for policy action to translate into business activity,” Breslau said. “If we’re able to clear some of these hurdles without a big near term fiscal drag, the release of some pent up demand could accelerate growth in the second half of 2013.”
With a new recession unlikely, the forecasters called for moderate performance improvement in the multifamily, hotel, and industrial sectors nationwide, while balanced new construction and absorption will negate any net change in retail fundamentals. Growing bifurcation in the office market will increase rent growth and net absorption in urban markets driven by technology, healthcare and energy jobs, while occupancy and rent stagnate in most of the nation’s suburbs and in markets with little exposure to those growth industries.
2013 Commercial Real Estate Outlook Highlights
2013 Real Estate Sector ForecastsCapital MarketsInvestment transaction volume will climb to more than $200 billion in 2013, but at a slowing pace. Yields will remain relatively attractive given the widened spreads between U.S. Treasury rates and real estate cap rates. Investors will continue to favor primary markets, but those with greater risk tolerance will seek larger yields in rapidly growing secondary markets including Seattle and Austin.
Despite structural constraints on U.S. banks, the cost and availability of debt will support increased transaction volume. Banks and insurers are active, real estate investment trusts are on fire, and securitized lenders will fill funding gaps where buyers seek higher leverage.
Policy & PoliticsThe election brought some certainty over the direction of federal regulations and health care. Questions remain over whether, or how, legislators will deal with a $16 trillion U.S. debt, constant annual deficits and the more immediate threat of the fiscal cliff and near-term deadlines on expiring tax cuts and spending cuts, said John Sikaitis, Jones Lang LaSalle’s Director of Office Research.
“In order to get past a lukewarm recovery from the economic and real estate standpoint,” Sikaitis said, “we really need some direction from Washington on what the overall fiscal and political direction of the country looks like moving forward.”
Outlook for Property Sectors in 2013
Within metros, tenants are migrating to more efficient, urban space and reducing space requirements per person in the process.
As lending requirements ease in 2013, more private investors will enter the multifamily market. Some markets begin to see a risk of overbuilding.
Private equity investors will again be the most active hotel investment group, focusing on value-add strategies. REITs will be the second most dominant investor type, buying up mostly established, well-located hotels in core markets. Offshore investors will continue to be players in gateway cities.
Limited supply and functionality of existing stock will lead to increased build-to-suit activity in 2013. Look for a potential boost in demand in 2013 from companies serving the recovering housing sector.
Retail centers with restaurants or other entertainment venues will outperform competing properties lacking in “experience retail offerings.” Traditional groceries are on the ropes while high-end grocers will add stores in 2013. Mom and pop shops, office suppliers, and sellers of physical media such as video games will suffer.
Some retail markets hardest hit by the housing collapse, including Las Vegas and Phoenix, will bounce back in 2013 as housing recovers.
Click here for a replay of Jones Lang LaSalle's 2013 Forecast presentation.For greater detail on Jones Lang LaSalle’s research forecasts, visit the firm’s research reports at: www.us.joneslanglasalle.com and follow JLL research on Twitter at @JLLResearch. About Jones Lang LaSalle Jones Lang LaSalle (NYSE: JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47 billion of assets under management. For further information, please visit www.joneslanglasalle.com.
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