In the 2012 KPMG Commercial Real Estate Outlook Survey, 51 percent of executives said they expect a significant amount of multi-family development to commence in 2013, by far the top sector, up from 34 percent in KPMG’s 2011 survey. Industrial development was the next highest sector with a significant amount of activity expected at 14 percent.
Though some elements of the industry have started a meaningful recovery, 46 percent of commercial real estate executives said their companies’ management teams will be spending the most time and energy on initiatives related to increasing operational efficiency or reducing costs in the next two years.
“Commercial real estate executives are seeing their margins and profits being squeezed, so increasing operational efficiency and reducing costs is a key focus,” said Greg Williams, national leader of KPMG LLP’s Building, Construction and Real Estate practice. “At the same time, there is tempered optimism as industry fundamentals continue to slowly improve and bright spots emerge.”
Modest Hiring, Revenue; Economic Recovery Pushed Back
Signs of that sense of tempered optimism are seen in executive predictions for hiring and revenue. Fifty-eight percent of respondents expect to add jobs in 2013 – up from 53 percent in last year’s survey – while 30 percent predict headcount levels will remain the same and 12 percent expect headcount to decrease. Additionally, a year from now, 8 percent expect their companies’ revenue to be significantly higher, while 59 percent predict moderate growth and 24 percent expect no change. Nine percent expect revenue to decrease.
Fifty-eight percent of the respondents expect the U.S. economy to improve next year, but they remain guarded about an economic recovery. In fact, 63 percent do not expect the economy to recover as a whole until 2014 or later - as opposed to 77 percent who, in the 2011 KPMG survey, predicted the recovery would be complete by the end of 2013.
Barriers to Growth
Executives say the industry continues to face growth challenges, including pricing pressures (35 percent), lack of customer demand (25 percent), access to and managing capital (24 percent), and regulatory and legislative pressures (21 percent).
“Commercial real estate execs are finding it challenging to source sufficient product that will produce the necessary yields to meet investor expectations. The gap between ask and bid price can still be significant in certain markets,” said Williams. “It’s also taking a lot longer to raise capital needed to grow their portfolios, while increased regulatory reporting requirements are driving up costs.”
IT Investment a Priority
When asked to identify the three areas where their company would most increase spending over the next year, 52 percent of the KPMG survey respondents said information technology (IT), followed by acquisition of a business (37 percent) and employee compensation and training (32 percent). Among those respondents who said their company had significant cash on its balance sheets, the most likely time frame for investment was this year (54 percent) or next year (33 percent), while 13 percent said 2014 or later.
“The focus on making investments in IT is part of the desire to further increase operational efficiency, especially in the realm of regulatory reporting,” said Williams. “Companies also want to attract qualified, high-performing individuals to join their companies and are willing to spend money to do it.”
The KPMG Commercial Real Estate Outlook Survey
The KPMG survey was completed in June 2012 and reflects the responses of nearly 80 senior executives in the commercial real estate industry. Based on revenue in the most recent fiscal year, 7 percent of respondents work for companies with annual revenues exceeding $10 billion, 36 percent with annual revenues in the $1 billion to $10 billion range, 55 percent with revenues in the $100 million to $1 billion range, and 2 percent with revenues of less than $100 million.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 145,000 people, including more than 8,000 partners, in 152 countries.