There is a current urge for commercial real estate investors to seek out yield, but yet they face challenges. However, as we look at the long-term outlook, commercial real estate investors are “feeling upbeat.” “Investors are facing a conundrum in today’s market: Low interest rates are making fixed-income products less attractive, while broader equities continue to be volatile amid weak global economic growth, ongoing geopolitical turmoil and depressed commodity prices,“ according to Forbes.
At South Florida’s Development Outlook panel, commercial real estate developers are locally focused on tri-county region areas which have the potential for opportunities. “The kinds of things we buy now are more strategic,” Billionaire real estate mogul, Jeff Greene said on a panel in April at The Real Deal’s Broward Showcase and Forum at the Design Center of the Americas in Dania Beach. In West Palm Beach, Greene said the office market lacks new product. His project, One West Palm, designed by Fort-Brescia, will bring 340,000 square feet of Class A office space. “If a Class A tenant wants to come to West Palm Beach today, it’s just not possible,” he stated.
“People are desperately seeking yield and having a very difficult time finding it,” said Chris Ludeman, global president of Capital Markets at CBRE Group, a commercial real estate services and investment firm. The article also highlighted that Mr. Ludeman also forecasts returns in the commercial real estate sector will continue rising in the years ahead. At the same time, structural changes will lead to evolution in the office, retail, industrial and multifamily segments. These changes include a growing preference for renting over buying in the aftermath of the U.S. housing crisis (resulting in greater multifamily demand), and a rise in e-commerce sales that is reshaping the traditional retail and industrial space.
Ludeman also added that, “Commercial real estate continues to provide attractive risk-adjusted returns in a low-interest rate, low-return environment,” he said. “In most instances, you’re dealing with good corporate credit and longer-term leases in markets where new supply is limited, leading to more sustainable, predictable yield.”
“Given the recent volatility in global markets, many commercial real estate investors have become focused on the “usual suspects”—near-term cyclical drivers such as economic growth, borrowing costs, and supply and demand. In the second brief in our series, we go beyond these factors to highlight a number of “unusual suspects”—structural drivers affecting real estate around the world that will prove critical for long-term success.”
While near-term volatility is creating uncertainty across markets, commercial real estate continues to be an attractive asset class for global institutional investors, according to CBRE.