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5 Trends Affecting Commercial Real Estate Market - 2017
The U.S. property market landscape in 2017 will be characterized by continued strong fundamentals, increased investor flows and high transaction volume. As for the economic landscape, the U.S. continues to grow moderately and add jobs. The U.S. employment gains continue to be strong, with unemployment dropping below 5.0 percent earlier this year, and adding to demand for housing in a variety of forms, for office space, for the retail sector and for industrial/distribution facilities.
The following 5 trends will play a significant role in commercial real estate in 2017.
Low interest and cap rate environment. While it seems fairly certain that the Fed will seek another rate hike before the year is out, it should be minor. The funds rate could be boosted by perhaps 0.25 percent to 0.50 percent in 2016 and the same in 2017, but both inflation and employment appear to be coming in under the Fed’s expectations.
Global economic and political uncertainties. The Brexit vote in the U.K. has added new uncertainties that will not be fully understood, much less resolved, in the near term. The IMF has downgraded global growth twice since January as uncertainties blur the outlook. For U.S. markets—real estate in particular—the impact is likely to be largely positive as U.S. assets become more attractive and valuable to global investors.
Foreign investment in the United States. Global economic and political uncertainty continues to drive capital to the United States. International capital flows into U.S. real estate assets will continue—and increase. The U.S. property market is the most stable and transparent in the world, with higher relative yields and price appreciation potential, making it an easy investment choice.
Slowing new supply. Additions to supply will remain limited across the board, with only modest supply growth in a few sectors—multifamily (now slowing for the remainder of 2016), student and seniors housing (creeping up) and single-tenant industrial (regional distribution centers)—and repurposing in others (suburban malls). Lending sources were extremely skeptical about funding new construction (particularly hotel and hospitality) coming out of the last recession, and the current lending environment is showing signs of reticence as bank reserve requirements from Basel III and CMBS risk retention requirements from Dodd-Frank are due to kick in by late 2016.
Volatile Energy Markets. Energy market volatility has already affected certain regional economies (Houston, North Dakota) and producer nations (Saudi Arabia, Venezuela). Last year saw a dramatic drop in oil prices, and the drop continued into early 2016, followed by substantial volatility through mid-year.
Source: National Real Estate Investor Online
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