Real Estate Forecast 2013-2014: Commercial Properties – Forbes

By Bill Conerly, Contributor

Commercial real estate will improve marginally in 2013. New construction activity will inch upward, operating income will be a little better, and property values will level off. Later, in 2014 or 2015, operating income and prices will both rise, triggering increased construction.

The recession clobbered occupancy of office, industrial and retail space, which pulled rents down. Landlords suffered from lower revenues. In the slow recovery, new construction dwindled to nearly nothing. Current need for additional square footage was nil, and those developers who wanted to build for future demand found that lenders were hesitant to take much risk.

The current situation is that leases are dribbling in, generating small increases in occupied square footage. The current pace of construction is not only lower than in the boom, but well below historic averages. We know that given even middling economic growth, we’ll eventually need to build at a much stronger pace. However, the high vacancy rates that are a legacy of the recession will limit new construction through 2013 at least.

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