Reading tea leaves: CBRE makes commercial real estate forecasts for next year

It's that time of year when prognosticating about what the real estate market might look like next year starts to percolate.

CBRE Inc. was first out of the gate and held its annual forecast event on Thursday that packed in more than 400 people at the Loews Hotel in Center City. I was privy to a pre-event conversation with some of the key Philadelphia area CBRE brokers and got some of their predictions for the year ahead.

The overall theme was positive as the recovery continues to strengthen. That's not to say there weren't some worrisome trends. Spencer G. Levy, head of global research for CBRE, noted that China, which is highly leveraged and showing signs of pulling back, could be a wildcard that could effect business and real estate. Levy also said there could be unforeseen consequence of oil prices falling. A lot of foreign capital flooding the U.S. real estate market is sovereign wealth that is energy-based.

Here are some predictions about trends that will impact Philadelphia-area real estate:

Rija Beares, who represents tenants looking for office space, said that some obsolete suburban office buildings will get knocked down to make way for parking or other uses, such as hotels. Beares also said companies and landlords will continue to look for space where workers can easily commute via train or walking; and that tenants will increase on-site amenities as work habits evolve and as a way to attract and retain talent. "We've seen the death of the 8-hour work day," Beares said. "Millennials are very productive but they set their own hours."

Rick Schuck and Thomas Gorman, who focus on retail, see retailers taking smaller spaces as they balance bricks-and-mortar with online shopping venues. They also predict continued growth of fast-casual restaurants and expansion of fast-fashion and discount retailers; owners of power centers and grocery-anchored retail properties will rethink of how they use space to fill vacancies; high street retail will continue to gain strength with rents rising and investment activity robust, especially by foreign and high-net-worth buyers.

Bill Wolf and Brad Ruppel specialize on industrial properties and see three main themes emerging: Rents will continue to climb; tenants will begin shifting to leasing light industrial, or smaller industrial properties in the 50,000 to 250,000-square-foot range; and companies leasing industrial space and landlords developing these properties will increasingly begin to provide more on-site amenities to employees.

Lizann McGowan, who concentrates on multifamily investment sales, foresees continued appetite for apartment properties, rents heading to more than $3.50 a square foot, and the Center City and suburban market that will absorb new units as they get delivered.

On the office investment side, Robert Fahey anticipates Center City to continue to be viewed positively by outside buyers and pricing on well located, long-term stabilized properties to swell and receive the most investor attention.

Source: Philadelphia Business Journal