US commercial real estate faces uncertainty

The uncertainty of the current economic outlook in the US is likely to continue to hold commercial property markets back from a full recovery in 2013, according to a report from real estate experts Jones Lang LaSalle.

Tuesday’s report - entitled National Commercial Real Estate Outlook 2013 - predicts that despite the US election providing investors with a clearer view of likely future policies, on-going doubts over the imminent ‘fiscal cliff’ and the fragility of the Eurozone could contribute to market stagnation.

Ben Breslau, Jones Lang LaSalle’s America’s research managing director, said: “The election itself doesn’t clear the air of the uncertainty in the marketplace.

“We have reasonable confidence that some, or all, of the fiscal cliff may be averted, but the Euro crisis may get worse before it gets better and will continue to drag on global confidence and the US economy into 2013”

Although a return to recession is now unlikely, investors in businesses are now waiting to see how incumbent President Obama intends to reach across old political dividing lines to form a cross-party consensus in dealing with the ‘fiscal cliff’.

A worst case scenario would result in the end of a range of tax cuts bought in during Obama’s previous term, as well as decreasing federal spending – a key tenet of his healthcare reforms – ahead of the anticipated re-instatement of the majority of the Dodd-Frank Wall Street Reform and Consumer Protection Act in early 2013.

“It takes time for policy action to translate into business activity”, said Breslau. “If we’re able to clear some of these hurdles without a big near term fiscal drag, the release of some pent up demand could accelerate growth in the second half of 2013.”

In the office property sector, the buoyancy of the technology, healthcare and energy sectors is likely to boost rents and net absorption in urban centres, whereas outlying areas are likely to remain stagnant.

An efficiency drive is seeing driven demand for large floor plates and new build properties that attract younger workers, whilst the growth of E-commerce has increased take up of distribution centres over 500,000 sq ft.

Total investment transaction volume is projected to increase by 10-15% in 2013, climbing above $200bn but at a slowed pace compared to the 64% spike of 2011.

Despite annual growth in the sector, questions still remain as to how legislators intend to deal with the country’s $16tn debt and annual deficits. John Sikaitis, Jones Land LaSalle’s director of office research, believes strong leadership will be the only way through.

He said: “In order to get past a lukewarm recovery from the economic and real estate standpoint, we really need some direction from Washington on what the overall fiscal and political direction of the country looks like moving forward.”