By: Andrew Batson, research analyst, Great Lakes Region, Jones Lang LaSalle
As we wrap up election coverage and head into the New Year, Jones Lang LaSalle research experts hosted a live webinar to predict the outlook for commercial real estate in 2013. The experts joined on Nov. 14 to conduct a live forecast for several real estate sectors, including capital markets, the office market, the multifamily market, the hotel market and more.
But first, Ben Breslau, JLL’s Americas research managing director, discussed the landscape of the looming economy.
Key Economic Findings and Forecasts
Fortunately, the experts are not predicting a recession for 2013. However, Breslau foresees that the early months of 2013 will be slowed by policy action currently underway. Breslau said, “It takes time for policy action to translate into business activity.”
However, this activity is expected to boost growth during the second half of 2013 and into 2014, along with pent-up demand from previously uncertain corporations and consumers.
The election might be over, but reservations remain regarding the U.S. economy moving forward. The combined uncertainties related to the threat of the fiscal cliff and the Euro debt crisis consequently result in apprehensive consumers. And, as economic uncertainties remain, global confidence will continue to waver, said Breslau.
When Washington provides a fiscal direction and uncertainties begin to fade, consumers will be more capable of making impactful investment decisions, added John Sikaitis, director of office research.
But, with no forecasted recession and a boost in late 2013, the experts predict improved performance in the following sectors: hotel, multifamily and industrial markets.
Individual Market Forecasts
Varying sectors and audiences will impact each market. Throughout the webinar, the experts touched on several pertinent markets in relation to commercial real estate based on previously compiled research.
The U.S. office market is expected to grow during the second half of 2013, said Sikaitis. He also revealed that the Sunbelt markets, including Georgia, Florida, Arizona, etc., are beginning to see notable expansion. A large fraction of the population vacated during 2008, and subsequently, this region did not recover in tune with the rest of the nation throughout 2009, 2010 or 2011. But, now the Sunbelt region is generating 35% of new demand and is projected to continue growing, said Sikaitis.
In Pittsburgh, for example, all eyes will be on projects such as the Tower at PNC Plaza, Millcraft Industries’ The Gardens in Market Square, McKnight Realty Partner’s progress in converting the Oliver building to mixed use, the fate of the Union Trust Building, and the Penguins’ positioning of the former Mellon Arena site for development. With Class A vacancy still sitting in single digits, how these developments unfold will undoubtedly impact tenant decisions into 2013 and beyond.
At Southpointe, Ansys Inc. recently signed a nearly 186,000 square foot, two-building development deal along with a 15-year lease. Construction will begin in spring 2013, with occupancy expected in 2014. (Source)
The industrial market is also predicted to prosper during the coming year. The recovery will be slow, says Breslau, but it will carry the industrial market forward. More investors are beginning to prioritize industrial markets (another good sign), and as a result, Breslau foresees a reduction in vacancy.
Recent industrial leasing deals in Columbus, Ohio include those of Menlo Worldwide Logistics and Restoration Hardware—both companies expanded their industrial presences in Columbus during the third quarter.
ProLogis leased nearly 300,000 square feet of additional space to Menlo at a building the logistics firm currently occupies in Etna, Ohio. Restoration Hardware is expanding its warehouse by 400,000 square feet at Park 70 at West Jefferson, a Duke Realty development.
The slow recovery of the industrial market is largely driven by the substantial growth in e-commerce. Breslau noted that e-commerce is five times more labor intensive than traditional commerce because of the nature of the production process. This is resulting in something of an “arms race in terms of the speed of delivery,” he said. This is leading to increased demands for local distribution facilities that are able to accommodate for quick, efficient deliveries.
On the forefront of the retail market, Keisha McDonnough, retail researcher, anticipates increased opportunities to engage retail consumers through technology. She said that the 2013 retail market will see “competition with clear winners and losers,” highlighting the fierce competition between e-commerce and m-commerce. It appears that online shopping will reap the most profits during 2013.
However, “experience shopping” will also attract shoppers, said McDonnough, impacting the growth of retail centers.
We see this trend taking shape in Columbus at the popular Easton Town Center, which is in the midst of adding a handful of new retail stores and eateries for the holiday season. (Source)
And in the greater Cleveland area, the draw of destination shopping centers is pulling in more than the traditional shop and restaurant occupants. American Greetings Corporation plans to move its corporate headquarters into a new 700,000-square-foot facility at the Crocker Park shopping center in 2014 when construction is completed. (Source)
The multifamily market also received a positive forecast from research manager, Brady Titcomb. A predicted shift toward favorable lending in 2013 will fuel growth within this sector as the year progresses. Titcomb suggested that “millennials” and “empty nesters” will account for a great deal of growth within this sector. By 2020, Titcomb expects an increase of 2 million millenials and 3 million empty nesters. But, also expect to see increased investments in secondary and tertiary assets.
For example, the Capital Park redevelopment project in Detroit aims to rehabilitate three mixed-use properties for an estimated $85 million, adding new apartments, retail and office space. And in Cleveland, K&D Group recently announced that its Embassy Suites hotel will be reverted back into an apartment complex. (Source)
Research director for the hotels group, Lauro Ferroni, next delivered predictions for the 2013 hotel sector, which will vary by city, but overall, is predicted to excel. Hotel income per room is expected to grow by 4-6% in the coming year. The increased demand for hotel accommodations is produced largely by business travel and international tourism. However, the main hotel spenders will primarily be private equity investors.
There are still many uncertainties that lie ahead, but Jones Lang LaSalle experts foresee positive economic growth for the commercial real estate market in the New Year. In fact, investment transaction volume is predicted to flourish by 10-15%. As you contemplate real estate investments, it is key to consider forecasts and the state of the individual market. If you’d like to speak with a broker in your city of interest to discuss these trends in more detail, please contact Jones Lang LaSalle today.