As the US economy continues its strong recovery, the commercial real estate market is profiting from an improving business environment, inflation rates and consumer confidence. Following robust growth in 2014, we expect 2015 to continue in similar lines, with new properties entering the market stabilising costs and vacancy rates in all sub-sectors and cities.
With a focus on the cities of New York, Los Angeles, Chicago, Dallas and Philadelphia, this report covers the rental market performance in terms of rates and yields and examines how best to maximise returns in the commercial real estate market, while minimising investment risk and exploring the impact of the economy on a market that can dictate regional performance. In this respect, we generally expect the stable growth seen in 2014 to continue in 2015 with moderate-to-strong growth in all sectors. Reasons for this positive outlook are solid growth indicators of the wider US economy, rising employment rates, as well as growing consumer confidence and spending levels; the estimated 2.3% GDP growth for 2014 is forecasted to accelerate to 2.7% in 2015.
The industrial and office sub-sectors have been the main beneficiaries of the robust economic recovery of the past year. Vacancy rates have been plummeting in both segments as 2014 progressed and new projects have been added to the pipeline. However, also the retail sector has begun feeling the impact of the economic upturn. Rising consumer confidence, improving employment levels and decreasing inflation levels due to lower oil prices in the last months of 2014 have given rise to a positive outlook for 2015 as retail sales continue to increase. For 2015, we believe we will see similar demand trends as is in the past year. Paired with various projects entering the market, this stable growth in demand will however not lead to major changes in rental rates and yields as supply and demand is increasingly balanced. Of our monitored cities, we forecast growth to take place particularly in Dallas and Los Angeles, where improving employment levels and the cities' attractiveness for business has led to increasing interest in prime rental properties, especially in the office segment.
General economic growth in the US is supported through recoveries in major US export markets, such as the UK, China, and the eurozone. As the economic recovery gathers pace in 2015, we expect all segments of the commercial real estate market to show stable growth over the coming months. There remain however systemic vulnerabilities of the economy and towards 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.
The US-based Wheeler Real Estate Investment Trust approved the acquisition of the membership interests of Wheeler Interests, Wheeler Real Estate and Wheeler Management. All of the company's assets and properties will be fully integrated and completely managed internally.
The US-based real estate investment trust (REIT) Select Income REIT (SIR) acquired the non-listed investment trust Cole Corporate Income Trust (CCIT) in a cash-and-stock deal valued at USD3bn. The deal also includes the assumption of USD298mn of mortgage debt, which will create an office and industrial net lease REIT.
US-based REIT Senior Housing Properties Trust (SNH) has agreed terms to purchase 23 class A medical office buildings (MOB) across the US for an estimated USD539mn. All assets cover a total of about 2.2mn square feet and are situated across 12 states.
Following rising rental rates in 2014, BMI believes the market will stabilise in 2015 as new projects enter the market and rising demand is balanced with new supply.