As the commercial real estate market continues to rebound in a lacklustre economy, industry executives say multi-family development will continue to grow but they remain focused on initiatives that increase operational efficiency and reduce costs, according to a recent survey by KPMG, the audit, tax, and advisory firm.

In the 2012 KPMG Commercial Real Estate Outlook Survey, 51 per cent of executives said they expect a significant amount of multi-family development to commence in 2013, by far the top sector, up from 34 per cent in KPMG's 2011 survey. Industrial development was the next highest sector with a significant amount of activity expected at 14 per cent.

Though some elements of the industry have started a meaningful recovery, 46 per cent 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," says Greg Williams, national leader of KPMG'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."

Signs of that sense of tempered optimism are seen in executive predictions for hiring and revenue. Fifty-eight per cent of respondents expect to add jobs in 2013 - up from 53 per cent in last year's survey - while 30 per cent predict headcount levels will remain the same and 12 per cent expect headcount to decrease. Additionally, a year from now, eight per cent expect their companies' revenue to be significantly higher, while 59 per cent predict moderate growth and 24 per cent expect no change. Nine per cent expect revenue to decrease.

Fifty-eight per cent of the respondents expect the US economy to improve next year, but they remain guarded about an economic recovery. In fact, 63 per cent do not expect the economy to recover as a whole until 2014 or later - as opposed to 77 per cent who, in the 2011 KPMG survey, predicted the recovery would be complete by the end of 2013.

Executives say the industry continues to face growth challenges, including pricing pressures (35 per cent), lack of customer demand (25 per cent), access to and managing capital (24 per cent), and regulatory and legislative pressures (21 per cent).

"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," says 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."

When asked to identify the three areas where their company would most increase spending over the next year, 52 per cent of the KPMG survey respondents said information technology (IT), followed by acquisition of a business (37 per cent) and employee compensation and training (32 per cent). 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 per cent) or next year (33 per cent), while 13 per cent 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," says Williams. "Companies also want to attract qualified, high-performing individuals to join their companies and are willing to spend money to do it."