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Cautious CRE Optimism, But Warning Signs Start to Accumulate
The commercial real estate outlook is cautiously optimistic, with moderate, steady growth forecasted for the year ahead, after years of unprecedented growth. Yet, according to Integra Realty Resources’ (IRR) signature Viewpoint 2018 publication, while 2018 is expected to experience continued economic growth, signs of excess that trigger market corrections are starting to accumulate.
IRR’s Anthony M. Graziano says, “Whether or not the economy can maintain forward motion is the definitive question in the year ahead. In this year’s report, we explore the major factors impacting continued economic expansion and a few of the key challenges and opportunities that face the commercial real estate market.”
Key report findings include:
– Three “final demand predictors,” essentially limits to further economic development, include: job growth (shifting into lower gear), incomes (aren’t rising enough to spur the final predictor), consumer spending.
– Shifts in the economy benefit some property types. For example, continued growth of service and e-commerce sectors have bolstered demand for office and warehouse properties.
– Cautionary capital markets: Even with a slower market, commercial property prices rose on average 8.4%, suggesting more careful selection rather than any withdrawal of capital is what is shaping the CRE investment marketplace.
– The office sector posted another year of solid absorption. Heading into 2018, 48.4% of suburban markets are in expansion, the highest since the financial crisis.
– Driven by e-commerce and global trade, the industrial sector continues to be a capital magnet.
– Retailers continue to be disrupted by e-commerce, along with shifting demographics and consumer spending habits.
– After several surging years during an eight-year bull cycle, the hotel market appears to be losing momentum.
– The rental apartment sector continued to push forward. The vast majority of markets (91.9%) are in expansion phase.
For comments, questions or concerns, please contact Dennis Kaiser
