Source: Forbes --- Industrial space is starting to expand, with more new deliveries than in recent years. Industrial typically has the shortest development and construction periods and thus is the first sector to complete new projects when the market improves. This trait means that vacancy rates will not fall too far, nor will rents rise too fast. Still, increased volume of rented space will help the large landlords improve their efficiency, though it does little for owners of one or two properties who must compete in a market with growing supply.
Retail space is seeing more absorption than construction, but there’s plenty to worry about. Retail spending has only increased 4.4 percent in the past 12 months; a year ago we saw a 6.2 percent gain, and a year before that a 7.8 percent increase. Our recent figure is certainly an increase, but not terribly fast, especially in light of two percent inflation. Looking forward, the end of the temporary payroll tax cut will pinch a number of wallets.
On the positive side for property owners is the extremely low interest rate for commercial mortgages. Those owners who qualify pay so little interest that it’s almost free. Others, however, still have some difficulty obtaining cheap financing.
Investor interest has been strong, but the recent stock market surge may shift some money away from real estate into stocks. It’s certainly foolish to invest for the future based on recent gains or losses, but that is what many investors seem to do. In the coming year it’s unlikely that prices of commercial properties who show a strong upward trend. Light to moderate gains are likely, but price risk is greater on the downside than the upside.
For contractors itching to erect some buildings, the best opportunities last year were in multi-family residential. This year single family residential and industrial offer the best gains. Next year and in 2014, look for retail then office construction at the top of the leaderboard.