Commercial real estate market may make gains next year

The commercial property market may improve further next year.

Many property management companies could experience an improved market situation next year, as a report completed by the Urban Land Institute and PricewaterhouseCoopers explained that next year should see further industry growth.

The current state of the industry has improved when compared to 2011's situation, according to the Emerging Trends in Real Estate 2013 report, compiled by PwC and ULI. This is due to the decline in unemployment, as that statistic will positively affect property absorption and further cut vacancy levels in the market.

There also will likely be a rising interest in apartment living from consumers, and this will still be a factor despite a large amount of new construction underway, the report noted. With the continued improvements in the market, there should be gains in rent appreciation, as well as higher incomes.

"With the outlook for commercial real estate continuing to improve in 2013, investors are expected to allocate substantial sums of capital to the real estate asset class, according to our survey respondents," said Mitch Roschelle , partner in the U.S. real estate advisory practice leader for PwC. "As yield in bonds and other financial instruments tighten in a still volatile market, commercial real estate's income producing and total return attributes offer investors potentially attractive risk-adjusted returns."

Some markets should experience significant gains
The report noted that there are several markets that should perform highly next year. San Francisco is expected to have the most impressive showing, as the area has a high demand for rental properties due to a significant amount of jobs that are expected to be added.

New York is projected to be the second-most successful market, as one-fifth of the employment that should be added is in both healthcare and education, the report said. However, the high price levels in the market could increase further, which may negatively affect the local market.

San Jose, as well as Texas cities Austin and Houston rounded out the top-five markets with the strongest projected years, the report added. Boston and Seattle also should have strong showings, while Washington, D.C., the Dallas/Fort Worth market and Orange County, California, should be the next five strongest markets next year. All of these areas should have a heightened interest from investors due to their growing economic indicators.

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