MIAMI-Experts agree: The commercial real estate markets that will perform the best will continue to be those with high barriers to entry. Those include Metro New York, the Mid-Atlantic area and the Texas markets of Dallas, Houston and Austin. Others include coastal cities in Northern and Southern California and the southern part of Florida. Major metro 24-hour cities that have increased population growth and an improving job market will do best.
“There is keen demand for industrial properties, especially in markets with high barriers to entry,” Ray Cirz, CEO and chairman at Miami-based Integra Realty Resources, tells GlobeSt.com. “One of our clients is planning to build a state-of-the-art facility in the Meadowlands, just outside New York City. The development budget is $150 per square foot, which previously was unheard of. In order to make the project feasible, rents must achieve record levels.”
Meanwhile, experts also agree that the markets that have been challenged in the past—such as Las Vegas, Reno and New Mexico—will remain challenged. The Arizona markets are starting to see some progress, but they’re still troubled. Unemployment is elevated, as is underemployment, so the jobs situation will need to improve to drive further recovery.
Randy Banchik, EVP of Los Angeles-based Westwood Financial Corp., is concerned investors are not accounting for the natural drag in actual value recovery that continues as market conditions reset when owners with new bases bring distressed property back into the competitive mix. “As prices have continued to improve, it’s increasingly compelling to be a seller,” he says. “Much of the product offerings we’ve seen over the past few years has been driven by lenders, and those sellers seem to have shifted to a more entrepreneurial mindset, utilizing the marketing tools and sales platforms that have been developed to greater advantage. Exchange sellers, however, might feel caught ‘out of the frying pan, into the fire’ due to limited exchange opportunities on the buy side.”
Dan Fasulo, managing director for RCA, says buyers have become more aggressive and interest rates allowed them to increasingly hit sellers’ expectations. The result: more sales activity. “Discretionary sellers came out en masse in the fourth quarter to beat the increase in capital gains. Going forward, more sellers will choose to unlock gains and recycle the capital into other assets via a 1031 exchange,” he says. “Bidding wars for top assets have the possibility to drive values even higher in the short term.”