Commercial real estate execs eye multifamily, retail sectors for growth, says KPMG report

Propelled by increasing economic optimism, commercial real estate industry executives say geographic expansion will be a key focus over the coming year, according to a recent survey conducted by KPMG LLP, the audit, tax and advisory firm.

In the 2013 KPMG Commercial Real Estate Outlook Survey, 58 percent of executives said they expect their company to increase spending most on geographic expansion, up from 21 percent in last year’s survey and 11 percent from KPMG’s 2011 survey.

In the United States, executives most frequently cited the Southwest (45 percent) and the Northeast (36 percent) regions as the best commercial real estate investment opportunities. Latin America (32 percent) and Asia Pacific (21 percent) were identified as the top real estate investment opportunities outside of the United States.

“Market expansion is an important focus for commercial real estate executives as they strive to grow the top line,” said Greg Williams, national leader of KPMG LLP’s Real Estate practice. “Domestically, the Southwest and Northeast are attractive markets because they are experiencing higher job and economic growth and thus have experienced a faster recovery, with property prices in select sub-markets within these regions at or above pre-recession levels.”

Development Trends

When asked how much new development is expected to commence in the United States in 2014, multi-family was identified as the top sector with 43 percent of respondents expecting “a significant amount” to launch, down from 51 percent in last year’s survey which significantly outpaced other asset classes. Nineteen percent expect a significant amount of development in retail in 2014, up from five percent in last year’s survey, while 18 percent expect a significant amount of development in hospitality, up from seven percent in last year’s survey.

“Multi-family is still the darling, but all sectors are expected to see an increase in new development as access to financing has improved for these projects, and executives are more optimistic about the economy’s growth prospects,” said Williams.

Seventy-two percent of respondents expect the U.S. economy to either moderately or significantly improve over the next year, up from 58 percent in last year’s survey. Additionally, 84 percent said their companies’ revenue increased over the past year, while the same percentage expects it to increase next year as well.

Revenue Drivers

Acquisitions (53 percent), improving real estate fundamentals (44 percent), and geographic expansion (38 percent) were selected as the top three drivers for revenue growth of the respondents’ companies over the next three years. Class A assets in primary markets (48 percent) and development opportunities (25 percent) were identified by commercial real estate executives as the top assets they would be in the market to acquire in the next year.

“While some markets are still stabilizing post-recession, there’s a flight to safety and security, and class A assets in primary markets continue to be the surest bets,” said Phil Marra, Northeast leader of KPMG’s Real Estate practice. “In some cases, however, we are seeing fresh approaches, such as new REITs forming to address opportunities in the single-family-home rental market.”

Twenty-five percent of those surveyed said their organization is finding an ample supply of quality properties that can deliver a sufficient return at reasonable prices, with another 60 percent saying their organization is not able to find quality properties at reasonable prices.

“Given that pricing is critical to producing sufficient yields, executives are being very selective as the availability of distressed assets has slowed,” added Marra.

Pricing pressures (32 percent), lack of customer demand (30 percent), and regulatory and legislative pressure (24 percent) were cited as the most significant growth barriers over the next year.

Political and Regulatory Uncertainty

When asked to identify the issues posing the biggest threat to business models, 40 percent of executives indicated political and regulatory uncertainty as their top concern. Thirty-three percent of respondents said they did not know how evolving Federal tax policy would impact their organization’s business strategy, while 27 percent said it would decrease their capital investment. Additionally, 67 percent said that their company was only somewhat prepared to proactively manage the impact of public policy and regulatory changes.

“The political and regulatory environment continues to pose challenges and uncertainty,” said Williams. “To maximize their success, organizations should assess how potential regulations and tax policy changes will impact their businesses, and proactively manage those impacts.”

The KPMG Commercial Real Estate Outlook Survey

The KPMG survey was completed in spring of 2013 and reflects the responses of 100 senior executives in the commercial real estate industry. Based on revenue in the most recent fiscal year, 8 percent of respondents work for companies with annual revenues exceeding $10 billion, 36 percent with annual revenues in the $1 billion to $10 billion range, and 56 percent with revenues in the $100 million to $1 billion range.

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 152,000 professionals, including more than 8,600 partners, in 156 countries.

Stantec, a global leader in sustainable design and engineering, has signed an agreement to acquire Environmental Systems Design, Inc. (ESD), a 270-person engineering firm headquartered in Chicago. Founded in 1967, ESD has built a reputation for excellence and innovation in high-performance design with a roster of industry-leading clients. The terms of the transaction are not disclosed.

Cornell Ann S. Bowers College of Computing and Information Science (Cornell Bowers CIS) Rendering courtesy Leers Weinzapfel Associates

University Buildings | Jun 9, 2023

Cornell’s new information science building will foster dynamic exchange of ideas and quiet, focused research

Construction recently began on Cornell University’s new 135,000-sf building for the Cornell Ann S. Bowers College of Computing and Information Science (Cornell Bowers CIS). The structure will bring together the departments of Computer Science, Information Science, and Statistics and Data Science for the first time in one complex.

Museums | Jun 6, 2023

New wing of Natural History Museums of Los Angeles to be a destination and portal

NHM Commons, a new wing and community hub under construction at The Natural History Museums (NHM) of Los Angeles County, was designed to be both a destination and a portal into the building and to the surrounding grounds.

Performing Arts Centers | Jun 6, 2023

Mumbai, India’s new Nita Mukesh Ambani Cultural Centre has three performing arts venues

In Mumbai, India, the recently completed Nita Mukesh Ambani Cultural Centre (NMACC) will showcase music, theater, and fine arts from India and from across the globe. Atlanta’s TVS Design served as the principal architect and interior designer of both the cultural center and the larger, adjacent Jio World Centre.

Architects | Jun 6, 2023

Taking storytelling to a new level in building design, with Gensler's Bob Weis and Andy Cohen

Bob Weis, formerly the head of Disney Imagineering, was recently hired by Gensler as its Global Immersive Experience Design Leader. He joins the firm's co-CEO Andy Cohen to discuss how Gensler will focus on storytelling to connect people to its projects.

Codes and Standards | Jun 6, 2023

California’s new power grid modernization plan furthers ambitious climate goals

California’s new $7.3 billion grid modernization plan is a crucial step in furthering its ambitious climate goals. The board of governors for the California Independent System Operator (CAISO), the state’s grid operator, recently approved a strategy to build thousands of miles of new high-voltage transmission lines.

Mixed-Use | Jun 6, 2023

Public-private partnerships crucial to central business district revitalization

Central Business Districts are under pressure to keep themselves relevant as they face competition from new, vibrant mixed-use neighborhoods emerging across the world’s largest cities.

Multifamily Housing | Jun 6, 2023

Minnesota expected to adopt building code that would cut energy use by 80%

Minnesota Gov. Tim Walz is expected to soon sign a bill that would change the state’s commercial building code so that new structures would use 80% less energy when compared to a 2004 baseline standard. The legislation aims for full implementation of the new code by 2036.

Healthcare Facilities | Jun 5, 2023

Modernizing mental health care in emergency departments: Improving patient outcomes

In today’s mental health crisis, there is a widespread shortage of beds to handle certain populations. Patients may languish in the ED for hours or days before they can be linked to an appropriate inpatient program.

Student Housing | Jun 5, 2023

The power of student engagement: How on-campus student housing can increase enrollment

Studies have confirmed that students are more likely to graduate when they live on campus, particularly when the on-campus experience encourages student learning and engagement, writes Design Collaborative's Nathan Woods, AIA.

Currently Reading

Commercial real estate execs eye multifamily, retail sectors for growth, says KPMG report

Tags

Engineers | Jun 12, 2023

University Buildings | Jun 9, 2023

Museums | Jun 6, 2023

Performing Arts Centers | Jun 6, 2023

Architects | Jun 6, 2023

Codes and Standards | Jun 6, 2023

Mixed-Use | Jun 6, 2023

Multifamily Housing | Jun 6, 2023

Healthcare Facilities | Jun 5, 2023

Student Housing | Jun 5, 2023

Most Popular Content

Magazine Subscription

Get our Newsletters

Follow BD+C: