What's ahead for commercial real estate in 2018?

by Steve Randall09 Jan 2018
As the New Year gets underway, what’s ahead for real estate and its investors for the coming months?

Charles DiRocco, director of research for consulting firm the Altus Group has given Mortgage Professional America his views on the current state of the market and how things may change during the year.

“As a whole, the real estate market continues to perform well. The economy is much stronger than we anticipated three or not of four years ago and it’s a more stabilized environment,” says DiRocco.

However, challenges surrounding geopolitics could disrupt globally economic growth, which would impact US growth and the real estate market.

DiRocco says that investors are generally happy with real estate but are asking questions about where prices are headed.

He notes that Class A real estate in the crowded primary markets such as Chicago, Los Angeles, San Francisco, Washington DC, New York and Boston is pretty much taken up, driving a shift to secondary markets, which are riskier but may return greater yields.

This sector will be the big one for commercial space
DiRocco says that it will be industrial which drives growth for CRE as demand for warehousing and fulfilment centers is fueled by rising e-commerce growth.

This shift is at the expense of retail where the conversation is around how to utilize existing space amid falling demand for bricks and mortar stores.

The previous 70% shopping, 30% entertainment mix for malls is starting to flip, DiRocco says, with the retail space acting more like a display center for products that will then be bought online.

However, retail could still benefit from growing e-commerce with online stores requiring physical space to enable collection of goods.

Despite the fast-growing tech sector, the trend for offices is changing.

“Offices aren’t the same size they used to be. There’s a lot of open layouts, telecommuting, reasons to not be in the office,” he says, highlighting flat rents and rising vacancy rates.

How about foreign investment?
DiRocco says that foreign investment in US commercial real estate is starting to slow down a bit following growth during the recession and the aftermath, when US CRE was still viewed as a safe bet.

While some may be put off due to the price rises which have taken Class A real estate to peak levels or above, foreign investors (and Americans) are still sitting on bundles of cash.

But he says that whether investors choose to use those reserves to invest in US real estate will depend on their willingness to take a risk on making a bet while the market’s high.



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