CHICAGO—“It's critical to note that change is in motion everywhere,” says Mark E. Rose, chairman and CEO of Avison Young, in a video segment discussing the firm's 2018 outlook report. “Change that is positive, powerful and moving quickly. This is the type of evolution that creates opportunity.”

Occupier behavior is one such change area, he points out: alternative workplace strategies are “finally being accepted as strategic.” When anticipating the impact of autonomous vehicles on everything from urban and suburban dynamics to the repurposing of parking lots and logistics configurations, “a host of real estate challenges and opportunities open up,” he says. “And while potentially disruptive in the short term, ultimately these trends will result in real estate being used more effectively and with greater cost efficiency.”

Then there's technology, “potentially the most exciting element of change in our industry,” says Rose. Tech adoption is “driving profitability and expanding capabilities exponentially.”

Another trend that AY is watching is workplace wellness. “Whole health, a combination of physical and mental wellness, is critical to the success of all enterprises,” Rose says. “Tenants have always observed that a workplace is happier with access to natural light, plants and fresher air. But studies using sensors that measure workplace conditions now also confirm the tangible benefits of employee wellness.”

The backdrop for this plethora of changing dynamics is a commercial real estate landscape in which conditions generally remain positive. “Yields on commercial real estate are still attractive when compared with alternative investments,” Rose points out. “Equity and debt capital are still plentiful, and available, and there's no shortage of demand for real estate.

“Employment data looks good, and economies are growing in the major countries in which we operate,” he adds. “And while markets are a little uncomfortable with certain aspects of both politics and central bank policies, these trends are a continuation from 2017, and not new concerns.”

Importantly, says Rose, interest and capitalization rates are still at historic lows. “Interest rates are moving up, incrementally, as they only have one way to go, but short-term interest rates are being properly and effectively normalized by central banks,” he says.

Cap rates, adds Rose, are another matter. While commercial real estate has operated in an environment of historically low cap rates in recent years, “the bid/ask spread is widening, and acting as a brake on transaction volumes in major markets. Cap rates and corresponding return requirements will eventually move as financing acquisitions becomes more expensive.”

Instant Insights /

'Change is In Motion Everywhere' in 2018

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