A Look Ahead to 2012

This is the time of year when all the real estate and financial analysts start making their predictions for 2012.  While there are many diverging opinions on the matter, there are a few facts that can help draw logical conclusions as to what might happen.  Looking at the commercial real estate market we can be sure that values and transaction volume will be closely correlated with the real and perceived strength of the economy.  In today’s market it is the global economy that has a large effect on the national and local scene.

Assuming we can resolve European financing issues and the economy continues its slow recovery, construction is expected to grow a moderate 2.4% this year.  The emphasis will be on more private developments and less public building, as government continues to tighten its spending.  Two likely areas of growth are warehousing and multi family developments.

Internet sales continue to grow with 40% of Black Friday sales occurring on line this year (compared to 34% last year).  This shift in consumer habits decreases the need for retail space and retailers are looking at stores with a smaller foot print.  On the flip side it increases the need for warehouse space and distribution centers, continuing to make this an opportunity for real estate investors.

Multifamily rental housing is experiencing a boom and the fundamentals show this will continue into next year.   This is due to increased demand and available financing.  As more people lose their homes or can’t get financing due to credit issues, there is a larger pool of renters in need of housing.  As for financing, FHA is offering very attractive financing (4.5% fixed for 30 years) for any multifamily housing over 4 units that meets their lending requirements.

While financing for multifamily has become easier, most other commercial financing will continue to be difficult as banks take on only the safest investments.  Cash buyers and borrowers with an established relationship with their bank continue to have the biggest advantage for getting deals done in 2012.

Many property owners continue to be “underwater” (owe more to  the bank than their property is worth), more delinquencies continue.  The banks have been holding off on foreclosures, but will most likely have a large inventory of foreclosures that continues to build through 2012.  This glut of bank owned properties will continue to put downward pressure on prices as banks work to remove these assets from their balance sheets.  Merrill Lynch reports that real estate values will continue on a downward trend another 8% thru 2012 then stabilize in 2013.  They are predicting that values will start to rise in 2014 & 2015 as the foreclosure inventory begins to return to a more normalized level.

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Dan Stiebel

Dan Stiebel

Associate Broker
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