The U.S. commercial real estate (CRE) sector is preparing itself for another year of economic doldrums and the absence of dynamic job generation, according to the Emerging Trends in Real Estate 2012 report released by PwC US and the Urban Land Institute (ULI).
‘Job creation is clearly the critical ingredient for a sustained recovery in commercial real estate, and the market participants we surveyed uniformly struggled to identify new employment engines,’ says Mitch Roschelle, partner in the U.S. real estate advisory practice at PwC. ‘As a result, businesses are focused on squeezing profitability out of productivity gains, and families forced into belt-tightening are using less square footage, which follows 'The Era of Less' sentiment we forecast last year.
‘In 2012,’ Rochelle continues, ‘investors expect pricing to level off in the top markets – and overall 'buy' sentiment will subside, selling appetites will increase, and more owners will hold until the economy untracks. This is part of 'the new normal,' as investors are coming to grips that they may not be selling for more than they paid.’
The report predicts that Washington, D.C., will be the top CRE market next year because of the activity within the federal government and in the regional technology, communications and biomedical industries. Other top markets for projected CRE activity based on their diverse local economies, according to the report, will include Austin, Texas; San Francisco; New York City; Boston; Seattle; San Jose, Calif.; Houston; Los Angeles; and San Diego.
Among property sectors for 2012, the report predicts that investment and development prospects will continue to advance across all major property sectors, led by apartments. Also expected to find favor are downtown office buildings in 24-hour cities; warehouse properties producing cash flow in prominent port and airport gateways; full-service hotels in the major markets; limited-service hotels without food and beverage; and neighborhood shopping centers serving stable infill suburban communities.
On the flip side, CRE experts gave suburban offices the lowest investment marks, while commodity buildings in campus settings isolated from urban amenities also received a thumbs down.
A copy of Emerging Trends in Real Estate 2012 is available online.