WASHINGTON, DC—A growing gap between tenant demand and supply is shaping the outlook for investors, according to the latest RICS US Commercial Property Monitor. “There is increasing appetite to acquire good quality space but with a shortage of stock, this is also feeding through into secondary opportunities,” says RICS chief economist Simon Rubinsohn. “Development is picking up speed, but insufficiently to address the high level of demand.”

Respondents to RICS' quarterly survey reported that supply in the office sector remained largely unchanged, while declining somewhat relative to demand in the industrial and retail areas. However, it's not only a shortage of available quality product in primary markets that's fueling investor demand for secondary ones.

In investment circles globally, “there are imperatives to invest not only for solid returns but also in relative safety,” says Alice DiMarzio, senior managing director with NGKF Capital Markets in New York City. “In 2014, confidence in American real estate expanded from gateway cities to a far broader path across all the country, with more than $96 billion invested in the US from Canada, China, Japan, Germany, Singapore, Switzerland, Australia and elsewhere.” This year will bring “similar if not even more expansive results.”

And while concerns remain about a turn in the interest rate cycle later this year, “with monetary policy likely to tighten only very gradually, the buoyant occupier market will remain a source of support for real estate more generally,” Rubinsohn says. Something generally not reflected in leasing figures “is the significantly higher occupier density in terms of employees per square foot,” says CEO Ann Gray of Gray Real Estate Advisors, Los Angeles. Therefore, office absorption is even better than it appears from a business health standpoint and equates to a much higher pre-recession level of occupancy, she says. 

As an indicator of the general optimism, a majority of property investors think it's easier and not harder to get financing in the US. “If anything, credit conditions eased in the fourth quarter” despite the uncertainty, Rubinsohn adds.

In a global context, the view of the US is much the same as the domestic perspective, according to the RICS Global Property Monitor Q4 report. While Japan is continuing on an upward trend, the US is showing real momentum, says RICS. As macroeconomic indicators supporting the leasing and investment sales markets, RICS notes that the nation's recorded GDP grew at an annualized pace of 5% in in the third quarter of 2014, while unemployment here is at its lowest levels since 2008.

“Despite the recent turbulence in financial markets, the collapse in oil prices is likely to provide some timely support for the global economy and this is being reflected in the generally positive responses from contributors to the latest RICS Global Commercial Property Monitor," says Rubinsohn. "Nowhere is this more visible than in Japan, where the combination of Abenomics and the country's heavy dependence on imported energy is fuelling optimism regarding the prospects for both rents and capital values."

Meanwhile, he adds, the recovery of real estate in parts of the euro area is "continuing to gain ground with Ireland, Spain and Portugal all seeing more favorable trends in both occupier and investment markets.”