US CRE Still Strong, Especially NYC

The multifamily sector is expected to outperform over the coming year.

The U.S. commercial property market continues to show strength, with the New York market in particular booming, according to the recently released reports RICS Q2 U.S. Commercial Property Monitor and RICS Q2 Global Commercial Property Report, both of which are composed of a sentiment survey and interviews with industry leaders. RICS is the London-based Royal Institution of Chartered Surveyors, which promotes professional qualifications and standards in the development and management of land, real estate, construction and infrastructure. The total number of professionals accredited worldwide by RICS is about 120,000.

Broadly speaking, according to the domestic RICS report, demand for space in U.S. commercial properties grew across all sectors in Q2, with the industrial sector showing an especially sharp increase. The organization’s Occupier Sentiment Index remained stable in Q2 at 35, showing a further steady improvement in conditions in the rental market. Rents are expected to rise across all sectors at both the three- and 12-month horizon, with multifamily units expected to record the largest gains. Respondents foresee growth of 3.2 percent, on average, in rents in the year to come.

Investor demand also has momentum, with demand from both domestic and foreign sources, while the supply of properties for sale staying flat. The multifamily sector is again expected to outperform over the coming year, RICS explains. The RICS Investment Sentiment Index came in at 29, down from 31 previously, but even so that shows improvement in the CRE investment market. On average, the respondents expected capital values to grow by 3.5 percent in the coming year, with growth accelerating afterward to an average of 4.6 percent over the next three years.

Unsurprisingly, the multifamily sector is expected to outperform over the coming year.

Among U.S. metros, New York stands out as a frenetic CRE market, according to RICS in a separate but also recent global real estate report. New York had the highest percentage of respondents – 83 percent – of any city in the world in RICS Q2 Global Commercial Property Report who believe market valuations are currently “expensive.” Furthermore, across the top markets in the metro, respondents believe the property cycle may be close to reaching its peak. Indeed, all New York contributors sense the market is either in the mid-upturn (67 percent) stage or peaking (33 percent).

But even so, the city still is highly desirable for investors and other players. “New York remains a popular destination for investors partly because of ongoing dynamism of the city,” RICS chief economist Simon Rubinsohn tells MHN. “This is being reflected most visibly at the moment in the dramatic growth of the tech sector, which is more than offsetting the slowdown seen in some other areas. Indeed, although valuations are now looking a little rich, I suspect the underlying strength of economic activity means the market will remain an attractive home for investment.”