What’s Hot in CRE? According to KPMG, the Southeast and Multifamily Properties
2014 brings a number of changes to the outlook of commercial real estate (CRE) according to audit, tax, and advisory firm, KPMG LLP’s 2014 Commercial Real Estate Outlook Survey. The results of surveying 100 senior CRE executives reveal, among other things, what new markets and geographic locations are in store for the sector, as well as top concerns.
In a dramatic drop from 2013’s 48%, this year only 25% of respondents reported that they would be seeking to invest in Class A assets. Instead, the survey saw increased interest, 7% in 2013 to 17% this year, in distressed assets.
Geographically, 48% of respondents are looking to the Southeast in search of the best real estate opportunities. The Southwest ranks next at 33% and then the Midwest at 31%. This represents a shift from the previous year when the Northeast and Southwest were favorites. KPMG analysts site a manufacturing boom, “right to work” legislation, tax breaks, transportation benefits, and proximity to technical centers as some of the draws to the Southeast.
The Multifamily sector continues to be at the forefront of executives’ minds with 53% of respondents predicting a “significant amount” of development to commence.
Greg Williams, National Leader of KPMG’s Real Estate practice, explains, “The rapid migration of young adults and baby boomers to urban areas coupled with displaced homeowners following the housing crisis remain key drivers of multi-family housing development.”
With home buying growing more difficult amidst the housing crisis, folks have turned to renting in urban areas where more jobs exist. Demand in apartment living has risen, thus driving rent rates higher, making the property type even more attractive to investors.
Williams cautions future investors, “Though investment opportunities exist, real estate executives should be mindful that the growth potential of multi-family housing could wane given the large influx of capital the sector has already received, driving prices up.”
In addition, 16% of the real estate executives are considering an IPO this year, up from last year’s 8%.
“The recent success non-traded REITs have had accessing the public market and the emergence of new REITs, including those capitalizing on opportunities in the single-family-home rental market as well as other non-traditional real estate owners, are driving more real estate executives to consider an IPO,” commented Williams.
According to the survey, “The IPO market was humming along smoothly even before 2013, when it exploded, raising almost $6 billion, almost three times the yearly average raised since the low point in 2008; many of these recent REIT IPOs reflect new asset classes, including single-family homes, cell towers, and billboards.”
When it comes to pinpointing challenges in the marketplace, last year’s survey revealed the top concern to be political and regulatory uncertainty. This year, 32% of respondents identified the speed and magnitude of the economic recovery as their main concern. Next was lack of job growth (30%), followed by inability to find investments delivering sufficient returns (23%), and the impact of new regulations/legislation (22%).
KPGM’s survey was completed from February through April 2014 and is based on the responses of 100 senior commercial real estate executives from the United States.
To review the entire survey, click here.
