Commercial real estate recovery should pick up in 2014

The commercial office sector should improve in 2014.

The commercial real estate sector is expected to gain momentum in 2014, according to a recent report from Jones Lang LaSalle. The investment firm stated that cautious leasing markets seen in 2013 will start to fall in the coming year as the nation's recovery starts to rev up.

Jones Lang LaSalle said investors are showing more signs of risk-taking as they leave massive markets such as New York, Chicago and Los Angeles for secondary markets that could yield high profits.

Those ingredients – along with an improved lending market and better cash flow - should help continue growth through the coming year. Jones Lang LaSalle predicts an expected increase in global investment volume of 10 percent year over year in 2014, which would push the total to $550 billion.

"We're seeing a tremendous weight of capital from a growing and diverse set of capital sources interested in a much wider range of U.S. real estate," said Ben Breslau, research managing director in the Americas for Jones Lang LaSalle. "Investors feel more comfortable with the economic outlook, and they've shown a greater appetite for risk that has led to a 21 percent global increase in year over year investment volumes."

Recovery not likely in all sectors
The commercial real estate recovery is gaining traction, but the pace of the recovery will likely be slower than previous cycles, according to the report from Jones Lang LaSalle. Businesses are better utilizing space and traditional office users such as banks and law firms are able to do more with less as innovations such as mobile banking change their respective business landscapes.

In turn, Jones Lang LaSalle is not predicting a huge change to commercial leasing activity after a subpar year in 2013.

"Global leasing volumes for the full-year are expected to be flat, and in most markets and countries, 2013 is likely to turn out to be a weak year for rental growth," said John Sikaitis, Jones Lang LaSalle's managing director of office research.

One area of the commercial sector Sikaitis believes will improve in 2014 is the office market.

With a burst from technology and energy companies, Jones Lang LaSalle projects that office rents will grow 5.5 percent in 2014.

"The big takeaway that we are starting to see is that after two to three years of a very siloed recovery in the energy and technology market, demand is starting to diversify," Sikaitis said. "Now, we are seeing a lot of markets contribute to higher leasing volumes, giving viability to the recovery we haven't seen in the past."

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