Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/443516
27 January | February | 2015 A As we look to 2015 and beyond, the commer- cial real estate market is enjoying much posi- tive press and continues to be a favored asset class relative to stocks, bonds, and cash. Af er the most recent commercial real estate down- ward cycle in third quarter 2008, followed by a rebound in 1Q10, we are at a new crossroads where prices are clearly outpacing valuations. T is is the f nal phase of our up cycle, and the key question is, how long can this phase run? When we think about investments and invest- ment cycles, we are coming to realize that the more things change, the more they stay the same. In other words, be worried when the market starts to say, "T is time it is dif erent." Economic Fits and Starts In our search for how prices and values are aligning themselves, we f rst need to examine the economy. T e outlook for the U.S. econ- omy is much brighter than it has been since before the Great Recession. Besides more than 3 percent growth in gross domestic product in 2Q14 and 3Q14, inf ation remains low and the unemployment rate declined to 5.8 percent in October 2014. In fact, job growth has improved enough that employers are on pace to add the most jobs on an annual basis since 1999, according to the Bureau of Labor Statistics. However, a variety of headwinds is still hold- ing back the progress that many economists had been predicting, with each setback caus- ing forecasters to recalibrate their expectations. T ese recalibrations have been triggered by a workforce participation rate that has declined to 1978 levels, as the wages of the majority of workers remain relatively stagnant. In addition, the federal debt has ballooned to nearly $18 trillion, while major entitlement programs are underfunded. T e housing sector has improved slightly, but the young adults we have relied on in the past to purchase homes are burdened with oversized amounts of student debt. Fur- thermore, many of the economies in Europe and Asia are contracting, and territory disputes from the Ukraine and Russia to Iraq and Syria have given rise to new acts of terrorism. However, in the end, the U.S. economy appears to have many resilient elements in place to withstand future disruptions in the f nancial markets. Each quarter, Real Estate Research Corp., a Situs company, surveys some of the nation's leading institutional investors about the econ- omy and reports this information in the quar- terly RERC Real Estate Report. As demonstrated in Figure 1, commercial real estate has been con- sistently rated higher than the alternatives, even as the economy has been recovering. Flush With Liquidity Despite the macroeconomic uncertainties, the global and domestic markets have provided "Price is what you pay; value is what you get." — Warren Buf et C.J. Burton