Midwest Real Estate News recently spoke with Doug Frye, president and chief executive officer of Colliers International, about the state of the commercial real estate industry in 2013. The good news? Frye says that the industry is gaining strength. But commercial real estate professionals will still face several challenges as the national economy continues its frustratingly slow recovery.
Midwest Real Estate News: We all know that a strong housing market is good for commercial real estate. If I’m correct, you see the housing market continuing its recovery this year and into the future, right?
Doug Frye: The housing market is on the mend, but I don’t think we’ll see a market as strong as what we have enjoyed in the past. We are just now starting to see the numbers increase, and we will see that as we continue to bump along in 2013 and 2014. One of the keys to a stronger housing market is seeing more money in the system. That is happening now. There is more money in the system. There is a consensus out there, whether you agree or not, that the crisis has passed. People are now more likely to step out and buy homes. More than anything else, a growth in consumer confidence is what we’re seeing here. And that is something that the housing market has needed.
MWREN: In Colliers’ own predictions for 2013 and beyond, your company mentions how important intellectual capital, energy and education — ICEE – are going to be in the future as far as fueling economic growth.
Frye: That’s not just a U.S. trend. That’s a global trend. The energy piece is simple. If you look at cities like Houston and Calgary, you can see that the energy piece can really drive an economy forward. Intellectual capital is quite interesting, as is education. It’s no secret, whether it’s Silicon Valley or Boston, San Diego or Austin, that these thought centers are the places people are going. This is where the building is taking place. The residential markets are favorable in these markets. Intellectual capital is the driver for the overall economy in these growing cities.
MWREN: Why is intellectual capital so important?
Frye: We can’t make products as cheaply as our competitors. I like to look as countries as basically as companies. In order for a company to grow, it needs to evolve. It needs to change the way it looks at itself, how it is positioned in the market. The United States has always been an enterprising company, one that has always been able to develop new ideas. Many brands in world started as U.S. brands, brands like Coca cola, Microsoft and Apple. The United States has changed. We don’t have the same resources from a commodity standpoint as some other countries have. We don’t have the cheap labor. What we have to do is reinvent ourselves. I would push our politicians and leaders to be more declarative about where we are going and how we get there. I would push them to say that we are going to be thought leaders in the world, that we are going to develop the next greatest things that people will be using. We are going to develop the next iPad.
MWREN: Is this happening in the country now?
Frye: Look at industries such as the medical field. The United States is doing amazing things in that field. We need to lead that field. And look at the energy sector. We need to be the ones to crack renewable energy. All of these things are consistent with growth in the intellectual capital area. That is what I believe the United States needs to be and largely has been over the years.
MWREN: In Colliers’ 2013 predictions, your company also has positive things to say about the industrial market. Do you feel that this sector is poised for a strong 2013?
Frye: Industrial will continue its robust growth, but we are looking at logistics and distribution more than manufacturing. That could change, though, if we follow the example of Germany. Germany has branded itself as a very high-end manufacturer. Germany has positioned itself as being able to do the work that can’t be outsourced to other countries. We might want to go after that distinction, too. We will see growth in industrial this year, though. That is a favored asset class in the United States.
MWREN: Cautious optimism seems to be the trend for commercial real estate these days. Do you feel the same way?
Frye: I do think that 2013 will be fine. But we need to be very careful. Everybody has a sense that the crisis has passed. But there are very few indicators that actually tell us that we are better off. Volatility is down. That is the only indicator that can really give me any comfort. The underlying fundamentals of the economy are still questionable. Look at Europe and you see annual shortfalls in pension funds. In the United States, you see that, too. The banking situation hasn’t played itself out yet, here or globally. To the extent that we have proper governance and regulations in this country, we think it will work out. But we can’t say that yet for sure. At the same time, the health of the U.S. infrastructure has dropped to 25th globally. That is alarming. If we don’t continue to improve our ports, improve our roads and rail systems that could be devastating. People need access to these industrial centers across the country. We are woefully behind on our infrastructure. That is one of the things that are lying out there. Now that the crisis is behind us, all the big problems need to be addressed again.
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