Boston made the list of Top 10 U.S. cities where the commercial real estate recovery will soar next year with gains in leasing, rents and pricing across all property sectors, according to the Urban Land Institute’s Emerging Trends in Real Estate Forecast.
While the Hub was edged out by San Francisco, New York City, San Jose, Austin, Texas and Houston for job growth, Boston scored sixth in the nation thanks to an increase in high-technology and biomedical research & development employment, increasing investor interest, the ULI survey said.
Despite a slower-than-normal real estate recovery, U.S. property sectors will register better prospects compared with last year, according to survey participants. Recent job creation should be enough to increase absorption and lower vacancy rates in the office, industrial, and retail sectors, helped by the limited new supply. Demand for apartments should hold up, survey respondents said. Additionally, improving fundamentals should help with rents and net operating incomes, building confidence about sustained growth and strengthening recent appreciation, researchers found.
Stephen Blank, ULI’s senior resident fellow for real estate finance, noted that investors must keep in mind recent progress made in the industry as they prepare for a slow but steady recovery. He said the findings suggest that the industry is moving forward. Those
who are patient and willing to rethink their expectations and adapt to market realities are the most likely to come out ahead next year, he added.
Investment capital’s interest in commercial real estate is expected to increase as other asset classes continue to offer minimal returns or too much volatility, the report found. Transaction volume and prices are expected to rise in 2013, but increases will be muted until credit markets return to normal. Commercial mortgage–backed securities may return to the financing spotlight once transaction activity increases. Interviewees expect that CMBS issuance can return to a $75 billion to $90 billion level over the next several years.
Respondents to Emerging Trends cite several best investor bets for 2013. As some downtowns have become too pricey, look in districts where “hip” residential neighborhoods meet commercial areas. Large tenants willingly pay high rents in return for more efficient design and lower operating costs in green projects. Begin to back off apartment development in low-barrier-to-entry markets, the survey found, as these places tend to overbuild quickly, softening rent growth.
Consider housing funds as residential markets finally get off bottom and major private capital investors make a move into the sector, respondents said. Repurpose the oversupply of older properties including abandoned malls, vacant strip centers, aging office parks, or low-ceilinged warehouses — an overabundance of properties requires new blood, the survey said.
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