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Based on the various analysts the 2015 outlook for the commercial mortgage-backed securities (CMBS) is depicting another strong year for commercial real estate. The changes in job growth, shrinking tenant space needs, new construction and falling cap rates will shift driven the dynamics among various markets and properties. Given its strong performance and an improving economic outlook, investors are expected to have increased confidence that commercial real estate and CMBS financing provide a relatively safe opportunity to pick up additional yield. According to CMBS industry observations, here are 10 takeaways about the outlook for property markets and fundamentals.
1. Growth from NOI Replacing Tightening Cap Rates: Properties prices are expected to continue increasing, although at decelerating pace, with future price appreciation likely to rest on increases in net operating income. rather than tightening cap rates.
2. Trends in Occupancy: Through the first quarters of 2014, occupancy levels for office, retail and lodging properties continued to increase, while the family sector appears to have peaked.
3. Retail should stabilize: The retail sector continues to suffer from shifting consumer behavior and an increase in online retailing.
4. Trends in Asking Rents and NOIs: The recent improvements in occupancy rates in the office, retail and lodging sectors have allowed landlords to push rents, while multifamily owners have been able to maintain rental growth even as occupancy has started to flip.
5. Construction Pipeline Is Growing: Wells Fargo Securities highlighted the top 10 markets by property type expected to see the largest amount of new supply through 2016 measured as a percentage of current inventory levels and based on current supply pipeline data.
6. Investors Pricing in Cap Rate Risks: While property investors may initially wince at cap rates everything to 2007 levels, the spread between the 10-year Treasury and the average cap rate suggests that investors are still being compensated for investment risk.
7. CRE Demand Nuanced Across Markets: Major markets have recovered 13.3% of their peak-to-through losses, while non-major markets have recovered only 75.7% of theirs, according to Morgan Stanley Research.
8. Multifamily “Golden Age” Drives Issuance: With the home ownership rate having fallen to 64.2% the lowest level since early 1995, Morgan Stanley said it believes that government-sponsored enterprise lending will
9. With Office, CBD Is Still the Place To Be: The office sector is continuing to recover with the anticipation of a more broad-based improvement of issue-using employment across metropolitan office markets and secondary and suburban markets, according to Fitch Ratings.
10. Industrial: Ongoing Resiliency – Based on Kroll Bond Rating Agency noted that the ongoing evolution of e-commerced and resurgence in domestic manufacturing has infused resiliency into the industrial sector.
Excerpts from the Article:The 2015 outlook for the commercial mortgage-backed securities (CMBS) market by various analysts is painting another strong year for commercial real estate. Importantly though, the dynamics among various markets and property types will shift driven by changes in job growth, shrinking tenant space needs, new construction and falling cap rates. “As the effects of the Great Recession fade and economic growth accelerates, the commercial real estate market has found its sweet spot,” report CMBS analysts Lea Overby and Steven Romasko at Nomura Securities. “A growing economy has resulted in higher demand for space, and limited supply has enabled property owners to push rents. These improvements, as well as further easing of credit conditions, will likely further bolster the performance of commercial real estate and CMBS [in 2015].”
Citation and link:
Heschmeyer, Mark. “10 Takeaways from 2015 CMBS Outlook About Property Fundamentals, Markets.” SDBJ News., 07 Jan. 2015 Web. 12 Jan. 2015.