The commercial real estate sector in the United States has been posting a strong growth in the past few months and now, market trends show that the growth is expected to continue in 2015 as well.
Several market reports show absorption rates improving, vacancy rates falling, rents increasing and supply of new office improving as well.
According to CoStar Group's Third Quarter 2014 Office Review and Outlook, 57 million square feet of office space was absorbed in the year through the third quarter - up from the 43 million square feet of space absorbed last year.
Vacancy rates also fell to 11.9 percent from the 12.1 percent recorded at the same time a year ago. About 35 percent of the markets across the U.S. are now seeing tighter vacancy rates when compared to the peak in 2006.
Average rents have also risen 3.6 percent on a year-over-year basis which is above the 2.5 percent recorded a year ago.
"If we look at the map in terms of which markets are doing well in office-using employment, it is full summer across most of the country. This is the prettiest picture you're likely to see in this economic cycle. If you're waiting for 'as good as it gets,' it's probably today in terms of year-over-year office employment growth being so pervasive," Hans Nordby, managing director of CoStar Portfolio Strategy, said in a statement.
While the growth in commercial real estate is a widespread phenomenon, some cities - especially in Texas- have come under investor spotlight. For the 36th annual Emerging Trends in Real Estate survey, which is conducted by the Urban Land Institute in association with PwC US on 1000 or more real estate experts, participants ranked five best performing cities for commercial real estate and sustainable growth. Below is the list:
1. Houston, Texas
2. Austin, Texas
3. San Francisco, Calif.
4. Denver, Colo.
5. Dallas/ Fort Worth, Texas
"Unlike previous reports and previous cycles, we are seeing sustained growth. In the past several years, we reported that real estate market participants' main fears revolved around the uncertainty with the economy," Mitch Roschelle, PwC U.S. real estate advisory practice leader, said in a statement.
"Investors are looking closely at opportunities beyond the core markets. These cities are positioning themselves as highly competitive in terms of livability, employment offerings and recreational and cultural amenities," Patrick Phillips, the global chief executive of Urban Land Institute, added in the statement.
Another recent report, titled "State of Market Survey", polled 158 top commercial real estate executives on their opinions and attitudes about the market segment and found that 89 percent of them were "bullish" about commercial real estate in the United States.
"The tipping point of the recovery is here," Walter Page, CoStar Portfolio Strategy director of office research added in the outlook statement.
"As an investor, the last one-third of the recovery is where it's at -- occupancy growth continues, rent growth is pretty strong and NOIs are catching up to that growth, so you have a broader base on which to build. It's a great time to take occupancy risk."
