The JLL 2012 Real Estate Report


CHICAGO — The European debt crisis coupled with ongoing financial concerns in some emerging markets will likely result in the U.S economy proceeding on a slow, but positive growth trajectory in 2012. So says Ben Breslau, managing director of research for the Americas at Jones Lang LaSalle.

Breslau and his research team hosted a webcast on Thursday that focused on national commercial real estate outlook for 2012. What follows is a synopsis of what to expect in the year ahead across four major property types.


The multifamily sector will continue to experience low vacancy rates and an uptick in rent in 2012. The fundamental shift away from home ownership, positive demographic trends, slow employment growth and a dearth of new product position the multifamily sector to remain the strongest in 2012.

During the first half of the year, Breslau anticipates delivery of new product will remain slow, which means vacancy rates could fall below 5 percent by mid-year. According to New York-based Reis, the national multifamily vacancy rate currently stands at 5.6 percent. He adds that new supply deliveries will increase during the second half of the year, but if the single-family housing market continues to be stagnant and employment increases, there will be demand to meet the new product.

“Multifamily is highly likely to retain its position as the most preferred sector among property investors in 2012,” adds Breslau.


For the industrial market, the demand for large spaces is expected to continue with some speculative development possible in 2012 as big-box spaces are absorbed. During the recovery thus far, spaces larger than 500,000 square feet have propelled demand, a trend that is expected to continue into 2012, says Aaron Ahlburn, director of industrial research for Jones Lang LaSalle. However, for Class B and C properties, space is taking longer to lease up.

“Though tightening in the industrial big-box sector will continue contributing to improving leasing and investment fundamentals in 2012, more leasing demand from smaller and mid-sized businesses will be required for broad growth across all classes and geographies,” Ahlburn says.

In areas such as the Inland Empire of Southern California and the Philadelphia market, speculative development of industrial space has already started, which should continue in 2012.

Despite the improvement in real estate fundamentals, there are some risks the industrial market is facing, including rising oil prices, companies continuing to keep inventories lean, and the volatility of the political and financial environments, which are affecting currencies and worldwide trade. Ahlburn adds that if retail sales are sustained beyond the holiday season, the industrial market will continue to experience growth.


The retail sector is experiencing growth in two different ways: Luxury retailers are encountering continued growth, and on the opposite end of the spectrum, wholesale or discount retailers are experiencing an outstanding performance as well, says Ahlburn.

As a result, middle-market retailers are feeling pressure to adopt different strategies in order to gain market share. Retailers are focusing on bargain opportunities, such as offering coupons or discounts via mobile applications.

“Since retailers need to appeal to a broad array of consumers, they’ll focus on functionality in 2012,” says Ahlburn.

Much of the retail development in 2012 will be redevelopment of existing centers, including the addition of new offerings and services, such as wireless capabilities and electronic displays, as well as enhanced food courts and common areas. Ahlburn adds that “cross channel” selling will become more common, which means customers will order online and then go to the store to pick up their products.


The office market will struggle in the first half of the year, due to increased global uncertainties and slow employment growth. Therefore, leasing velocity will be slow as well, says John Sikaitis, director of office research for Jones Lang LaSalle.

The areas that will see some growth in office space will be commodity-rich and technology-rich markets, such as Texas, Denver and North California. “Most other market segments will likely remain at or near the bottom of the market cycle in a stagnant position for the majority of 2012, handing tenants in most market niches prolonged leverage with respect to options, pricing and concessions,” says Sikaitis.

Lauren Picariello, vice president and director of occupier research for Jones Lang LaSalle, says companies are motivated to lower their occupancy costs, which has led to a change in space usage. Employees are sharing desks and more employees are working from home.

Another way companies are lowering cost is by retrofitting buildings, instead of developing new properties. However, in areas where retrofitting is not feasible, Picariello says new development could occur, despite double-digit vacancies in some markets.

—credit Savannah Duncan

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