US commercial market continues to improve

by Steve Randall15 Jan 2018
Another international real estate firm has given a strong health check report to the US commercial real estate market.

Avison Young says that although the CRE market globally is reacting to changes in dynamics as the current investment cycle enters the latter stages, the US market continues to improve.

"U.S. commercial property markets demonstrated further strength in terms of vacancy and pricing in 2017 and the recent tax reform legislation could have a positive impact on real estate and investors in 2018, in spite of the often-divisive issues facing the country," comments Earl Webb, President, U.S. Operations for Avison Young.

Webb notes that overall sales transactions were lower in 2017, as they had been in 2016, but that domestic and international investors still view US CRE as a safe investment, and there was a fair balance between new supply and overall incremental demand.

"An abundance of capital remains available for trades, pricing is strong and property markets are registering meaningful development in response to demand for modern properties. These factors will keep the U.S. commercial property market on its current upward trajectory through 2018," he said.

Vacancies trending higher

The nationwide office vacancy rate for US markets tracked by Avison Young was 11.8% at the end of 2017, down slightly from the end of 2016, but is expected to rise to 12% by year-end 2018.

San Francisco will continue to be the tightest market at 5.8% while New York, Philadelphia, Washington, DC, Chicago and Dallas, the five largest markets, are expected to post gains, albeit minor ones.

The vacancy rate for industrial properties was down slightly to 5.2% at year-end 2017 but is forecast to rise to 5.4% by the end of 2018.

"We expect several factors to influence real estate occupancy and capital-markets activity in 2018," adds Webb. "Real estate will provide attractive yields relative to stock-and-bond alternatives as the growth rate of the stock market should slow from that of 2017."

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