Growth in STEM (science, technology, engineering, and mathematics) employment and the continuing recovery in the U.S. housing market are already impacting commercial real estate, according to the Jones Lang LaSalle Cross Sector Outlook. 


Total sector volumes in the first three quarters of 2013 have hit $208.82 billion, an increase of 30 percent over the levels at the same time period in 2012. The growth in those areas is fueling greater occupancy and rent increases while boosting investor demand. As Millennials become a larger component of the workforce, that younger generation will dramatically impact the operations of the whole range of commercial real estate.
“The U.S. housing market has experienced significant and welcome improvement in recent years, and the release of pent-up demand should continue to accelerate as Millennials form new households in an improving job market,” says Jay Koster, president of Jones Lang LaSalle’s (JLL) Americas Capital Markets business. “This will, in turn, have a significant impact on commercial real estate, as local economies improve because of the resulting increase in jobs in the construction, real estate, lending, retail, and manufacturing industries.”
At the same time, the rise of the Millennial generation and its interest in technology and collaboration will have a major influence on the future of commercial real estate. “Millennials have given rise to a ‘sharing economy’ in the United States, and this has changed and will continue to change how stores market to shoppers, how office space and lifestyle hotels are featured, how online purchases are shipped, and how new apartment communities are designed and laid out,” says Marisha Clinton, director of research for JLL Capital Markets.
As for investors, overall investment sales volume has increased in 2013-jumping 30 percent in the first three quarters when compared to the same period last year. However, the presence of institutions has softened over the past two years as the amount of core product available for purchase in primary markets has decreased. A sizeable amount of international investors continue to target Los Angeles and Manhattan, but they also are broadening their reach to buy properties in secondary markets such as Houston and Seattle, where the energy and technology sectors are thriving.
Overall, the hotel sector continues to boast strong operating fundamentals and growth in revenue per available room (revPAR), and the national occupancy rate in 2013 is set to come just one percentage point shy of the 2006 peak. Going forward, expect further improvement in resort and select-service hotels, the latter of which has garnered more interest from off-shore buyers. Hotel investment sales are soaring, adding up to $14.6 billion in the first nine months of 2013, a dramatic increase from the first three quarters of last year.
Looking ahead to 2014, investment sales should continue to demonstrate positive momentum. Despite near-term headwinds related to domestic spending concerns, overall investment sales volume should increase approximately 15 percent in 2014 from its 2013 total. Furthermore, as the search for yield continues and the recovery broadens, expect to see growing interest from investors in core and value-add assets in secondary markets.
