Statistical Indicators

Private Sector to Lead CRE Recovery, Jones Lang LaSalle Predicts

Posted on Friday, November 19, 2010

According to Jones Lang LaSalle’s 2011 National Commercial Real Estate Outlook, the majority of the commercial real estate (CRE) industry can expect a commercial comeback in 2011.
The Chicago-based financial and professional services firm announced its findings at a yearly media Webcast event this month.
“The economic recovery has come through the public sector with government stimulus and monetary policy, but with gross domestic product growth at just 1.6 percent in the third quarter, that is well below a typical public-sector recovery,” said Ben Breslau, Jones Lang LaSalle’s Americas research managing director.
Breslau says 2011 will be the year that “the private sector takes the baton and starts to drive growth.”
He predicts corporations will be flush with cash and will continue to spend and start to hire. Add to that the fact that bank credit is improving and consumers are spending again, and Breslau says the private sector will be the primary contributor to improving commercial real estate fundamentals as early as next year.
The company predicts that total investment transaction volume will increase by 36 percent to $125 billion in 2011
but only 31 percent of markets will be tenant favorable by 2012.
The outlook also forecasts that apartments will top the “hot list” for investors next year and the hotel sector will rebound more quickly than expected.
When it comes to capital markets, activity will continue to trend upward throughout 2011 as investor interest grows amid a favorable monetary environment and an improving macroeconomic picture, Jones Lang LaSalle reports.
“Total investment transaction volume in apartments, office, retail, and industrial will increase by a projected 36 percent over the 2010 figure, which at an estimated $92 billion would represent an 80 percent increase over the low reached in 2009,” said Josh Gelormini, the company’s VP of capital markets research.
Because companies have seen their internal vacancy rates grow by nine percent as they reduced headcounts over the last two years, “rightsizing the portfolio” is important for corporate real estate executives for the next 12 months.
“When we asked tenants to rank the key factors shaping their real estate strategy, rightsizing the portfolio was number one, closely followed by streamlining and efficiency,” said Lauren Picariello, director of occupier research for Jones Lang LaSalle. “Companies today are disposing of space in non-core locations as well as renewing leases in more expensive CBD [central business district] locations for client facing teams, then relocating backroom functions to less expensive suburban locations.”
Jones Lang LaSalle expects risk management, cash conservation, and cost management to strongly influence business plans and the corporate demand for space next year. Sectors expected to enter a commercial comeback in 2011 include office, multifamily, hotels, industrial, and retail, according to the company’s findings.
By: Heather Hill Cernoch

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