BMI View: The US commercial real estate market is growing due to a growing US economy. It further profits from an improving business environment, inflation rates and consumer confidence. Despite the dominance of local players, there is an increasing number of foreign investors who want to secure investment in a ''safe haven. This trend can be explained by the security the US real estate market offers as well as good revenue margins. Following robust growth in 2014, we expect 2015 and 2016 to continue in similar lines, with new properties entering the market stabilising costs and vacancy rates in all sub-sectors and cities.
The US economy is set to grow at a more rapid pace in 2015, supported by lower oil prices, a tightening labour market and improving sentiment, although rising external headwinds will see that growth remain relatively subdued. We forecast real GDP growth of 2.5% in 2015, up from 2.4% in 2014. Over the long term, global headwinds and a rebound in imports will cap real GDP growth below historical
The economy of New York City constitutes the largest regional economy of the United States and is greatly influenced by its financial industry. Los Angeles is a major trade hub and manufacturing centre. Also Chicago excels in trade and manufacturing. Philadelphia's economy is characterized by a decline of the manufacturing industry which is substituted by more knowledge-based sectors like healthcare and education. Trade accounts for a considerable industry share. Dallas' growing economy is based on its technology and business sector.
Office space will remain an appealing commercial real estate segment for investors, in our view, over
the next few years. We expect this segment of the commercial real estate market to grow, as the national job market and tertiary services in particular are growing. With regards to user demand, the greatest opportunities continue to lie in the new-build developments for premium and Grade A office space. Across all the cities we cover there are no rent-free months for office space. There are many office projects in the pipeline, especially in New York City, trying to satisfy higher demand. Higher demand will lead in our view to higher office space prices.
Also the US retail real estate market is a growing market, given a higher GNP, lower unemployment rates and higher income, resulting in higher household spending. This has positive implications for the US retail real estate market. Especially high-end retail space offers huge growth potential and high rents. Also the net yields are high. Higher demand for retail space is matched by limited supply, which will put upward pressure on US retail real estate rents.
Industrial space in the US is relatively cheap compared to the rents for office and retail real estate. Yet the net yields are comparably high which makes investing equally attractive. The prospects for the development of industrial space rents are positive considering increasing trade flows in the coming years.
There remain however systemic vulnerabilities with regards to the economy and the potential for detrimental external political impacts, as well as dependence on the industrial sector for the contemporary economic recovery, which could slow down growth and hence subdue demand for commercial properties.