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Commercial Real Estate Growth to Slow in 2014, Analyst Says

11/27/2013 | By Sarah Borchersen-Keto

After exhibiting an “incredible” pace of recovery since 2009, growth in the commercial real estate sector will likely slow during the coming year, according to Bob O’Brien, U.S. leader for real estate services at Deloitte & Touche LLP.

“If you take a look at capital markets activity, (the) improvement in fundamentals, transaction activity, all of it has been very strong over the past few years. We think the industry has really hit its stride, so although we’re still predicting improvement in 2014, we just think that the pace of improvement slows down a bit,” O’Brien said in a video interview with REIT.com at REITWorld 2013: NAREIT’s Annual Convention for All Things REIT at the San Francisco Marriott Marquis.

O’Brien pointed out that the commercial real estate market is responding to the demand for new product.

“We’re finally starting to see some additions to supply, and we’re starting to see an uptick in development activity,” he said.

At the same time, he added, concerns persist about the potential impact on interest rates as the Federal Reserve tapers its bond purchases, as well as the outlook for modest economic growth.

According to O’Brien, after several years of focusing on deleveraging their balance sheets and on improving their portfolio, it’s now time for REITs “to focus on operations and really try to drive improved EBITDA or FFO margins.” He pointed out that some REITs are using business intelligence and analytic tools to identify opportunities, optimize pricing, reduce cost and improve margins.

“If I was to give a CEO one piece of advice, I’d say this is the right time to look at that. These tools that exist now are very powerful,” O’Brien said.

Meanwhile, O’Brien noted that development activity in the multifamily sector is “well established,” and a “reasonable amount” of development activity is starting to be seen in selected office markets.  O’Brien also observed that “we’re seeing increased development activity in industrial, driven by e-commerce primarily. It’s not the 1980s by any means, but it’s better than it was a few years ago.”