This week’s perspective is provided by Tom Powers:
Have been traveling to both coasts and the middle of the country since beginning of year meeting with brokers, developers, lenders and investors. Have observed some interesting things that I thought would be worth sharing.
In no particular order:
- The DC market has slowed down from its breakneck pace of the past few years, but still highly sought after from investors.
- Northern California is riding a tech expansion but this time with real companies that will survive. Pricing is up, leasing is very active and the expectations are for rising rental rates. For some submarkets, may already be too late if you were trying to time the recovery.
- The middle of the country is still on the sidelines when it comes to the improvements that we are seeing in the coastal cities. The country is fairly bifurcated from a real estate perspective.
- Europe still scares a lot of people due to banking repercussions for US Banks who have ties to considerable amount of the debt that is in question.
- A good leading indicator for Europe is the Italian bond. The current 6.5% yield on 10 year bonds can change on a dime. If yields head down, could be a good leading indicator for Europe in general. If they start creeping towards 7.5%- 8.0% range, things could get very ugly.
- Copper prices, housing values and job growth are all also indicators that are worth keeping an eye on regularly.
- Everyone seems to think that interest rates will stay low for most of 2012. The weak economy domestically, uncertainty in Europe, the slow down in growth in Asia, all are given as reasons. This should be good for commercial real estate as attractive leverage coupled with somewhat improving fundamentals bodes well for investors.
- Most people in our industry seem to be much more optimistic than at this time last year.
- A number of larger national developers/investors that were focused on office and industrial are getting into the apartment development business.
- Medical related real estate will continue to evolve and will become a more important component of both developer and investor portfolios. As the medical industry rapidly changes, the real estate component of the past will become more antiquated and will need to be modernized and improved upon.
- It’s not getting any easier to get transactions closed, but at least there are a lot more of them to have the chance to work on.