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Commercial properties rebound, more attractive to investors

6/9/2013 | Real Estate Blog

There is a great Shirley Temple movie called “Stand Up and Cheer.” The year is 1934, and the country is in the depths of the Great Depression. President Roosevelt creates a Department of Amusement and gives the top job to a theatrical impressario. His job is simple: Cheer up the nation. The movie ends with a news flash: The Depression is over! Banks are opening up again! “We’re out of the red!” A musical number follows, and we all, yes, stand up and cheer.

Of course, the Great Depression had no big “We’re out of the red!” moment, even in retrospect. Neither, Philadelphia can tell you, did the Great Recession. But recent market analyses show that one major sector of the economy, commercial real estate, is climbing out of the hole created by the 2008 financial meltdown.

One positive sign is that investment sales are beginning to pick up. The Urban Land Institute and Ernst & Young Real Estate Consensus Forecast projects that transaction volume should increase about 7 percent from 2012 by the end of this year. ULI/EY says, too, that steady improvement will be seen through 2014 and 2015.

Investors are attracted to properties that are leased up or about to be leased up. The office market in Philadelphia showed a 14 percent vacancy rate in fourth quarter 2012, lower than the national rate (15.4 percent) and already lower than the projected national rate at the end of 2013. Industrial properties are not fare as well here. The national average was 12.8 percent for fourth quarter 2012, but Philadelphia logged a 15.5 percent rate, the ninth highest of the major markets.

Investors will also note that there are few new properties coming online. Development has been slow for the past few years, and anything under way right now will not be ready for occupancy for some time. The lack of new space should keep lease rates competitive and occupancy healthy.

Source: Financial Advisor Magazine, “High-Quality Commercial Real Estate Market On An Upward Trajectory, Offering Opportunity for Investors,” Chuck Schreiber, June 6, 2013