Commercial Real Estate Execs See Improving Revenue, Headcount, While Distressed Assets Remain Key Issue on Road to Recovery: KPMG Survey

NEW YORK, Oct. 5, 2011 /PRNewswire/ -- Commercial real estate executives expect to see improvements in revenue and headcount next year, but the majority predict a full economic recovery is years away, according to a recent survey by KPMG LLP, the audit, tax, and advisory firm.  These executives also believe distressed real estate will remain a key industry issue.  

In the KPMG survey, 64 percent of the commercial real estate executives said their company's current revenue is higher than last year, and 75 percent anticipate that their revenue will be higher one year from now.

They also are beginning to add headcount.  Fifty-three 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 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.  "This is not surprising considering the status of current uncertain economic conditions and how hard this industry was hit by the downturn.

"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.  

Investment Strategies Impacted by Distressed Real Estate

Sixty-six percent of the respondents rate 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."

Despite these concerns, Williams noted that there are some bright spots with multi-family investment and development seen as gaining the most traction, since many remain hesitant about purchasing a home in the current economic environment.  In the KPMG survey, 34 percent of the executives said they expect a significant amount of multi-family development to commence next year, a much higher percentage than the office (22 percent), retail (20 percent), hospitality (19 percent), and industrial (17 percent) sectors.

Capital Spending

When asked where they will spend capital over the next year, 44 percent of the respondents 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," said Williams.  "Companies are looking at IT investments to further increase efficiencies, especially in back-office operations."

Barriers to Growth

Lack of tenant demand (36 percent), regulatory and legislative pressures (28 percent), and pricing pressures (23 percent) were deemed by commercial real estate executives to be the most significant barriers to growth over the next year.  The majority of executives (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.

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.

"While starting from a low point, we do see reasons for optimism as executives focus on growth and expand into new markets," concluded Williams.  

THE KPMG COMMERCIAL REAL ESTATE INDUSTRY PULSE 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.

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International Cooperative ("KPMG International").  KPMG International's member firms have 138,000 professionals, including more than 7,900 partners, in 150 countries.

Contact:  
Ichiro Kawasaki
KPMG LLP
201-307-8640    
[email protected]

SOURCE KPMG LLP