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Heady Demand for U.S. Commercial Real Estate

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Investor and lender confidence in the U.S. commercial real estate market is surging, according to the sixth annual Akerman U.S. Real Estate Industry Outlook Survey, released Wednesday by the law firm Akerman LLP.

Fifty-eight percent of real estate executives in the poll said they were more optimistic about the market this year than they were in 2014.

Thirty-nine percent cited improvement in the U.S. economy, 23% low interest rates and 15% the availability of equity capital.

For the first time in the six years of the poll’s existence, U.S. government policies took a back seat to global unrest among the concerns on executives’ minds. Just 15% cited federal gridlock as the most pressing issue facing their industry, down from 34% in 2014.

Twenty-three percent were concerned about the global economy, and 22% about interest rate uncertainty.

Executives predicted that banks, more than any other funding source, would drive financing.

Insurance companies and foreign capital would also remain key drivers of growth in the financing space, they said.

Survey participants believed that nontraditional investment vehicles would contribute even greater funding. They cited commercial mortgage-backed securities, private equity, REITs and pension funds as potential sources.

Akerman said, however, that investors and lenders remained diligent and were structuring deals with greater discipline.

This indicated that the market was on sounder footing than it was before the financial downturn, and industry players were better capitalized to withstand fluctuations in the market.

“As 2015 unfolds, the industry is seeing an all-time record of institutional equity and global equity competing for core real estate assetsRichard Bezold, chair of Akerman’s real estate practice group, said in a statement.

“As investor appetite grows and deals become more aggressive, the industry will increasingly need to focus on maintaining rationality.”

Akerman interviewed 176 clients and other top real estate executives across the U.S. by telephone in March, seeking their perceptions of the health of the U.S. commercial real estate market.

Markets Lure Foreign Investment

Fifty-eight percent of real estate executives believed the multifamily sector would continue to lead commercial real estate through the recovery.

Seventy percent said apartment development would drive multifamily activity, compared with 17% who cited senior living facilities and 11% condominiums.

Executives said single-family homebuilding would be the second most active real estate sector, followed by hospitality, retail, industrial and office. Survey participants saw the purchasing power of the Chinese yuan over the U.S. dollar as a potentially significant driver for many U.S. markets, including industrial, hospitality, multifamily, retail and office.

They believed that investors from Europe and Latin America would remain among the top three foreign capital sources in 2015 despite the strengthening of the U.S. dollar against those regions’ currencies.

Forty-two percent of executives predicted that the biggest increase in Latin American real estate investment in the U.S. would come from Brazil, while 34% also expected Brazil to receive the largest increase of U.S. investment in Latin American real estate, followed by Mexico.

And for the first time in half a century, Cuba’s burgeoning real estate market blipped on U.S. executives’ radar, with 8% expressing slight optimism about investment opportunities on the island.

Development Trends

Several trends are influencing real estate development, the survey found.

One is a new urbanism, characterized by baby boomers’ and millennials’ increasing preference to combine a “live, work, play” lifestyle in a compact city center.

Thirty-four percent of executives believed this changing lifestyle trend would have the most significant effect on U.S. real estate development in 2015 and beyond.

Half of executives interviewed predicted that employment in 2015 would be either marginally or significantly higher than in 2014.

Nearly 30% said the ability to create well-paying jobs would have the most significant impact on real estate development over the next three years.

And 26% of executives felt that the most important influence on development would come from the senior living and health care real estate sectors catering to the housing preferences and needs of the country’s aging population.

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