Commercial Real Estate Finance

Recently, the Pension Real Estate Association (PREA) held its annual gathering in Chicago, where Leanne Lachman (of Lachman Associates and Columbia Business School) presented some important facts about worldwide population trends. As reported in IREI‘s monthly newsletter, the future of commercial real estate lies in urban areas:

• Globally, population growth is entirely urban. All future population growth will be absorbed by cities and require massive property development.
• The greatest urban population growth is in the three largest countries — China, India and the United States.
• Europe is not a good place for investors because its demand is based simply on replacement. There is no real growth. Every new building must be matched by demolition. (quoted in IREI Monthly Insights, Nov. ’11)

Lachman also noted something the commercial real estate industry has already figured out: Asian cities are the fastest-growing markets in the world, with some of the most promising opportunities for investment. It’s no surprise that J.P. Morgan (NYSE: JPM) and others are investing heavily in India, China, and other rapidly growing Asian markets.

Yet even with such frenzied investment on the other side of the world, investors and developers in America have reason for some (cautious) optimism. Though the U.S. is slipping from its pedestal as the world’s economic leader, it is still expected to see an increase in its population in the coming years (in contrast with other industrialized countries, where populations are either stable or declining). As in China and India, America’s cities continue to grow, and with this growth comes an increased demand for multifamily and other commercial properties.

However, urban spaces do offer a challenge to CRE developers and investors that suburban or rural areas may not. Higher labor costs and taxes are two hurdles to be experienced in many major cities. Also, developers may face the often-challenging local ordinances of cities such as New York (as I discussed on Monday).

We see, then, that the world-wide trend in which populations are contracting into major metropolises–rather than expanding from them, as we’ve seen in America’s past–offers both opportunities and hurdles when it comes to investing domestically. It is important to remember, despite the gloomy economic and employment forecasts with which we’re constantly bombarded, there are still opportunities–in America–in the future.

#CRE #population

 

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