Sam Chandan of Chandan Economics is one of the most insightful economists I know, so it was a pleasure to have him on the show recently to talk about his 2014 commercial real estate forecast.
Fourth-quarter sales volume has been a bit slower than the same period last year, he said, but don’t read too much into that. Much of the decline, he said, is due to the tax uncertainty seen in late 2012. Many owners decided to sell, and that boosted the 2012 year-end numbers relative to this year.
Prices, availability of financing, and conduit loan production have all improved, said the Wharton School professor, and secondary markets are now catching up to primary ones in overall activity.
I’ve seen that myself in Miami, which has really appeared on the radar of international investors. Chandan said that’s true not only for the residential market here, but the commercial real estate market is offering attractive yields compared to metropolitan centers that were over-bought after the 2008-09 financial meltdown.
Plus, Chandan said, Miami market performance isn’t going to correlate well with a market like Washington, D.C., so that offers some diversification to investors.
I, for one, am concerned about the inevitable upward drift in interest rates. Chandan said the Fed has much more control over short-term rates than long-term rates, so increases there could definitely happen. He’s forecasting 3.7% for the 10-year Treasury by the end of 2014.
“Money is still very, very cheap, but it’s not going to stay that way,” he said.
And, as I’ve said many times, the real driver in the economy is business formation and entrepreneurship. Chandan sees this turning positive. People feel more confident in a U.S. recovery than they did two years ago, he said, so that should be healthy for demand.
Also, in Florida, home equity has been a key component in small business financing, Chandan said. Continued improvement in the housing market should help in rebuilding that equity.
Click here for the full interview with Sam Chandan of Chandan Economics.
