Commercial Real Estate Trends in 2017
We are witnessing great changes in the real estate industry, which are being influenced by macroeconomic trends and regulation. This is in addition to significant demographic shifts, the rise of the millennial generation with their on-the-go lifestyles, an aging and downsizing baby boomer generation, heightened urbanization, as well as a period of technological transformation. Despite all of this change, the Association of Foreign Investors in Real Estate’s 2016 survey still marks the US as the most favored destination of real estate investments by foreigners. In the last year, we have seen a rise of 11.4% in apartment real estate, 8.2% in commercial real estate, and a 12.6% rise specifically in office property prices in CBD’s. This is a far cry from where we were almost 10 years ago, when the housing crisis hit.
It can safely be said that we are well beyond the rebound from the 2007/8 crash, with this past December’s prices at almost 24% above the peak of the pre-global financial crisis figures. Commercial real estate assets have performed well with an annual gain averaging 9.2% (Moody’s/ Real Capital Analytics – All Property Index). When comparing today’s prices to those of the last peak in 2007, we see a rise of 49% for CBD office properties. The improving job market and low unemployment rate continue to boost consumer confidence.
The GDP, according to Deloitte’s Q3 2016 US Economic Forecast, is set to modestly grow by 2.5% this year. This could potentially signal a slowdown in commercial real estate activity. In general, commercial real estate transaction volumes have had an apparent decline of above 9%, whereas the multi-family residential sector has displayed continuous year-after-year growth of 4.3%.
Commercial real estate sellers are currently more interested in certainty of execution than just going with the highest bid. Meanwhile, the financing market is currently being led by asset acquisition rather than refinancing. America still remains an attractive market for global capital and, all in all, the deal flow is still immense. Commercial asset pricing continues to be stable despite the slight decline in transactions.
Many questions arise regarding the Trump administration and how its future policies will affect real estate as a whole. Could we be entering a period of de-regulation and a turn back on Dodd-Frank? Of this we cannot be sure, however we can probably bank on it that the interest rates will continue to go up. As the economy is strong and steady, we are bound to still enjoy a good yield from commercial real estate – even if there were to be a heightened impact affecting the market, when comparing to a 10-year yield from US treasuries.
With the growing shift of consumption moving to e-commerce and the continued rise of mega chain stores, medium commercial real estate and mom-and-pop stores are having a hard time competing. On the other hand, because of technological advancements and startups feeding off the rise of e-commerce, endless companies are sprouting up that provide services in this very sector, and they require lots of office space. Commercial real estate owners have had to adapt to the times and creatively cater to a changing work culture, where an office is no longer just for work but also for play. Technology advancements and trends will continue to affect commercial real estate for the time to come.
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Category: Real estate