NEW YORK CITY — KPMG has released the results of its 2011 commercial real estate industry pulse survey, which indicated that executives in the United States expect to see improvements in revenue and employment next year, but the majority predict a full economic recovery is years away.
Reflecting these general sentiments, 64 percent of those executives surveyed said their company's current revenue is higher than last year, and 75 percent anticipate that their revenue will be higher still 1 year from now.
These companies also are beginning to add employees, and 53 percent said they plan to add personnel in the next year, compared to 13 percent seeing a decrease. However, they are not predicting that hiring on the whole will significantly pick up anytime soon. When asked when they expect their company's U.S. headcount to return to pre-recession levels, 27 percent said the end of 2013, 17 percent said the end of 2014 or later, and 11 percent said it would never return to pre-recession levels.
In addition, 57 percent do not expect a full economic recovery until the end of 2013 or later.
“Although real estate executives see things moving in the right direction, they believe it's going to be some time before they see evidence to support higher levels of confidence,” said Greg Williams, national leader of KPMG LLP's Building, Construction and Real Estate practice. “The good news is that there has been an infusion of capital as institutional investors and others seeking an alternative to the public equity markets are investing in commercial real estate, especially in primary markets where we're seeing prices at or near pre-recession values,” said Williams.
The survey also pointed to a general belief that distressed real estate will remain a key industry issue. Sixty-six percent of the respondents rated the marketplace for investment opportunities better than a year ago and 75 percent said distressed real estate would have an impact on their investment strategies over the next 12 months.
“For most commercial real estate executives, the fundamentals behind real estate demand remain a concern and this seems to indicate that prices in many markets may not have hit bottom yet,” said Williams. “Executives are struggling to find sectors and markets that can deliver a reasonable return on their investments commensurate with the risk involved.”
However, Williams noted that there are some bright spots. Multifamily investment and development seen as gaining the most traction. Thirty-four percent of the respondents said they expect a significant amount of multifamily development to commence next year, due much to the fact that home-buying remains at a low rate. This expected activity reflected a much higher belief that the office (22 percent), retail (20 percent), hospitality (19 percent), and industrial (17 percent) sectors would see growth.
On the capital expenditures side, 44 percent of the executives said they expected their companies to most increase spending on information technology, followed by acquisition of a business (31 percent) and new products and services (23 percent).
“During the downturn, the industry has focused on how to function more efficiently, especially in IT and back-office operations,” said Williams.
When asked to identify the single initiative on which company management would spend the most energy, time and resources over the next two years, 33 percent said investing in organic growth. Improving operation processes and related technology (16 percent), making changes to business models (13 percent), and mergers or acquisitions (13 percent) were the next highest ranking initiatives.
Finally, lack of tenant demand (36 percent), regulatory and legislative pressures (28 percent), and pricing pressures (23 percent) were deemed the most significant barriers to growth over the next year. A majority (57 percent) said they expected today's key economic fundamentals (unemployment, job growth, cost of living, etc.) in their primary markets to be better this time next year, with 34 percent saying they would be the same as this year.
“While starting from a low point, we do see reasons for optimism as executives focus on growth and expand into new markets,” concluded Williams.
— Dan Marcec
About the survey
The KPMG survey was conducted in the summer of 2011 and reflects the responses of senior executives in the U.S. commercial real estate industry. Based on revenue in the most recent fiscal year, 56 percent of respondents work for companies with annual revenues in the $100 million to $1 billion range, 36 percent with annual revenues in the $1 billion to $10 billion range, and eight percent with revenues exceeding $10 billion.