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.

The Pacific Institute, a global nonpartisan water think tank, has released guidance for developers to plan, design, and operate onsite water reuse systems. The Guide for Developing Onsite Water Systems to Support Regional Water Resilience advances circular, localized approaches to managing water that reduce a site’s water footprint, improve its resilience to water shortage or other disruptions, and provide benefits for local communities and regional water systems.

Office Buildings | Feb 9, 2023

Post-Covid Manhattan office market rebound gaining momentum

Office workers in Manhattan continue to return to their workplaces in sufficient numbers for many of their employers to maintain or expand their footprint in the city, according to a survey of more than 140 major Manhattan office employers conducted in January by The Partnership for New York City.

Giants 400 | Feb 9, 2023

New Giants 400 download: Get the complete at-a-glance 2022 Giants 400 rankings in Excel

See how your architecture, engineering, or construction firm stacks up against the nation's AEC Giants. For more than 45 years, the editors of Building Design+Construction have surveyed the largest AEC firms in the U.S./Canada to create the annual Giants 400 report. This year, a record 519 firms participated in the Giants 400 report. The final report includes 137 rankings across 25 building sectors and specialty categories.

University Buildings | Feb 8, 2023

STEM-focused Kettering University opens Stantec-designed Learning Commons

In Flint, Mich., Kettering University opened its new $63 million Learning Commons, designed by Stantec. The new facility will support collaboration, ideation, and digital technology for the STEM-focused higher learning institution.

Sustainability | Feb 8, 2023

A wind energy system—without the blades—can be placed on commercial building rooftops

Aeromine Technologies’ bladeless system captures and amplifies a building’s airflow like airfoils on a race car.

Codes and Standards | Feb 8, 2023

GSA releases draft of federal low embodied carbon material standards

The General Services Administration recently released a document that outlines standards for low embodied carbon materials and products to be used on federal construction projects.

University Buildings | Feb 7, 2023

Kansas City University's Center for Medical Education Innovation can adapt to changes in medical curriculum

The Center for Medical Education Innovation (CMEI) at Kansas City University was designed to adapt to changes in medical curriculum and pedagogy. The project program supported the mission of training leaders in osteopathic medicine with a state-of-the-art facility that leverages active-learning and simulation-based training.

Multifamily Housing | Feb 7, 2023

Multifamily housing rents flat in January, developers remain optimistic

Multifamily rents were flat in January 2023 as a strong jobs report indicated that fears of a significant economic recession may be overblown. U.S. asking rents averaged $1,701, unchanged from the prior month, according to the latest Yardi Matrix National Multifamily Report.

Image by David Harper from Pixabay - 2022 Reconstruction Sector Giants

Giants 400 | Feb 6, 2023

2022 Reconstruction Sector Giants: Top architecture, engineering, and construction firms in the U.S. building reconstruction and renovation sector

Gensler, Stantec, IPS, Alfa Tech, STO Building Group, and Turner Construction top BD+C's rankings of the nation's largest reconstruction sector architecture, engineering, and construction firms, as reported in the 2022 Giants 400 Report.

Currently Reading

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

Tags

Multifamily Housing | Feb 10, 2023

Sustainability | Feb 9, 2023

Office Buildings | Feb 9, 2023

Giants 400 | Feb 9, 2023

University Buildings | Feb 8, 2023

Sustainability | Feb 8, 2023

Codes and Standards | Feb 8, 2023

University Buildings | Feb 7, 2023

Multifamily Housing | Feb 7, 2023

Giants 400 | Feb 6, 2023

Most Popular Content

Magazine Subscription

Get our Newsletters

Follow BD+C: