9/12/2014 | By Sarah Borchersen-Keto
Commercial real estate executives are overwhelmingly bullish on the outlook for their industry through the next 12 months, according to a survey conducted by international law firm DLA Piper.
DLA Piper’s survey, which was conducted in August, showed 89 percent of executives are upbeat for the coming year, compared with 85 percent a year ago and 30 percent in 2011. The survey was completed by 158 respondents, including CEOs, COOs, CFOs and other senior executives and real estate professionals.
Forty-five percent of respondents cited the abundant availability of financing as the strongest cause for optimism, while 31 percent pointed to the strength of the economy.
Regarding the Federal Reserve’s closely watched monetary policy, 83 percent of respondents said they expect interest rates to increase slightly during the coming year. Of that group, 73 percent indicated that they believe there will be no corresponding change to capitalization rates.
Jay Epstein, co-chair of DLA Piper’s global real estate practice, suggested that the industry consensus is that while interest rates may go up, “they won’t go up materially in the near term.” Low interest rates, combined with the lack of new construction, “means the supply-demand curve is still working in favor of sellers and driving a lot of transactions because there’s so much capital still chasing real estate,” Epstein observed.
This year’s edition of DLA Piper’s survey reflected changing attitudes towards investment targets. Respondents picked health care assets as the most attractive investment class, followed by the multifamily sector in second place and industrial sector in third. In the previous five years, the multifamily sector ranked as the most attractive investment opportunity, outpacing all other asset classes by a wide margin.
Additionally, for the first time since the survey began in 2005, Germany was named the most attractive market for international investment, followed by Brazil and China.
Meanwhile, non-U.S. investors are expected to be the most active equity investors in the commercial real estate market, followed by pension funds, according to the survey. “I think we’ll continue to see growing activity from foreign investors who conclude that this is the best place to invest,” Epstein said.
The survey also looked at the changing face of the office market. Eighty-eight percent of respondents said they believe that the movement toward flexible and collaborative office spaces among entrepreneurial and tech-related businesses is likely to take hold in more traditional industries.