The CRE market continues to see brighter days. The volume of overall commercial real estate investment rose 14% last year as compared to 2012, but activity in the office building sector increased even more – by 17% — to more than $104 billion, according to the CoStar Group. Although this didn’t reach 2007’s peak office investment levels, it still demonstrates the return of strong investor interest in office property.
Today, a good location, well-maintained units, attractive common areas and the right amenities are no longer enough to keep occupancy rates high and the property value of an apartment building up. Instead, success in commercial real estate investing can often hinge on smart property management, which can ensure that a seemingly profitable investment doesn’t instead turn into a negative cash-flow mistake.
In 2013, large established markets such as Boston, Chicago, Los Angeles, New York City, San Francisco and Washington remained the focus of many real estate investors.
In our previous blog, we took an early look back at 2013 to review the Connecticut commercial real estate market. The net was that despite concerns about unemployment, budget deficits and various financial crises, the New England economy continued on a path of slow growth recovery.
One year ago, serious concerns surrounding unemployment, budget deficits and various financial crises combined to make many believe the United States was poised to fall back into economic recession in 2012. Fortunately, this did not occur and the New England economy continued on a path of slow growth recovery.
Lead paint remediation in Massachusetts. Soil contamination in Connecticut. Asbestos in New York. Environmental issues are a common occurrence throughout our pipeline of multifamily and mixed-use transactions. Among all of the factors that investment real estate buyers and sellers need to be aware of, environmental concerns have become increasingly important since the 1980s after judicial decisions related to the liability of property owners to effect property site cleanup. Environmental issues with land or buildings can greatly reduce their value, make them difficult to finance and, if a contaminated property is purchased, the buyer may be responsible for the cost of clean-up even if the buyer did not cause or contribute to the problem.
While improving fundamentals continue to drive a strong recovery in Connecticut’s multifamily sector, most asset classes have not fully recovered from the recent recession in terms of rents and occupancy. Investors in retail, office and industrial properties continue to look for job growth as a leading indicator to a rebound in asset values.
With investment real estate trading at capitalization (Cap) rates close to their historic lows for most property classes, there is a growing concern that low interest rates may be driving commercial real estate prices to unsustainable levels.
With investor sentiment in commercial real estate on the rebound, the National Real Estate Investor Sentiment Index rose to another high in the first quarter of 2013 — up 3 points to 174. This is an especially strong vote of confidence because the survey was conducted in late December and early January when we were all focused on the potential impact of the fiscal cliff on the U.S. economy.
With spring just around the corner, the first blooms of the season can’t be far behind. But while we’re waiting, the Bronx is already blooming – at least the Bronx investment real estate market. It’s been firming up over the past six months, and we see that activity continuing through the rest of this year.