A number of areas of growing strength in the retail and commercial real estate market point to continued improvement in the U.S. economy, according to a report from real estate research and consulting firm Maximus Advisors.
While sales of single-family homes continue to struggle, the areas of greatest strength are in apartment rentals, office space and retail real estate.
“As we have previously predicted, the U.S. apartment market has been recovering at an astounding pace,” said Peter Muoio, senior principal at Maximum. “The sector will continue to benefit from the growing preference for renting over homeownership as well as the rapid growth of the young adult population. We predict that vacancies will continue to decline while effective rents grow robustly during the next two years due to limited development of new multifamily properties during the recession.”
In the retail real estate segment, stabilization of consumer spending bodes well for recovery, although some stores are closing due to competition from online sites, according to Maximus. As well, it has yet to be seen how rising gas and food prices will affect consumer spending, Muoio added.
In addition, with employment slowing picking up, the office/commercial market recovery has begun as supply and demand have crossed offer. Office absorption has been positive for the past two quarters. Muoio predicted that said the office/commercial market has bottomed and will see vacancies decline more rapidly in 2013 and 2014.
Along those lines, the industrial segment is bottoming and demand appears to be picking up as industrial output continues to rise and exports are at all-time highs.
On the negative side, new and existing home sales floundered to an annualized 5.4 million in April, down dramatically from a peak of 6.7 million when tax credits were in effect. Homeownership was previously considered to be an upward-only investment, but that has been shattered by the housing market being at the center of the financial crisis, Muoio said. This has fundamentally changed the decision matrix on renting versus buying firmly toward renting, and will subdue demand in the single family market for at least the next several years, Muoio said.