LOS ANGELES – Agility. That’s the word woven throughout CBRE’s recently released US Real Estate Market Outlook as the company’s primary advice to investors as the real estate market gets less predictable this year.
The economy is still going strong, thank you. But the range of possible economic outcomes this year has widened amid uncertain timing on federal policy changes such as infrastructure spending, interest-rate increases and the full impact of tax changes.
Spencer G. Levy, CBRE’s head of research in the Americas and senior economic advisor, says that 2018 likely will test investors’ ability to quickly adapt their strategy and portfolios to economic changes. “Agility is more important than ever for investors and occupiers,” Levy told GlobeSt.com.
The outlook for the real estate market is set against a fairly bright economic picture—at least for 2018. As Levy says in the outlook report, “Despite all the noise from Washington, our forecast hasn’t changed significantly from a year ago. We still expect moderate economic growth with slowing employment gains.”
GlobeSt.com covered CBRE’s outlook on several sectors of the US commercial real estate market, including:
- In capital markets, investors should shift focus to properties’ income returns rather than appreciation returns. As noted by Chris Ludeman, president of global capital markets for CBRE, “Given the changes to the tax code, there is a better case to be made for continued economic expansion. And with economic expansion, we expect continued strong performance of commercial real estate especially in high growth secondary markets which may see further cap rate compression even in the face of rising interest rates.”
- Meanwhile, the office market can expect continued growth at a slower pace. Still, CBRE’s head of office research Andrea Cross said, “Tech has accounted for about 20% of leasing volume during this cycle, and “Tech has accounted for about 20% of leasing volume during this cycle, and we expect demand to stay strong, but we also see healthy demand from other sectors, such as healthcare.”
- There’s a possibility of a supply pinch in the industrial & logistics market, and Adam Mullen, senior managing director and Americas leader for industrial and logistics, has noticed “the growth of e-commerce has triggered a permanent, structural change in demand for these properties.”
- The data center segment has more mainstream interest. “The inquiries that we’re fielding across the platform from people wanting to learn more and wanting to invest in the data center space increased significantly in the past year,” Pat Lynch, senior managing director for CBRE’s data center solutions group said.
- There should be solid retail rent growth for non-gateway markets through 2023, and “the US retail industry is evolving rapidly, but it isn’t receding,” says Todd Caruso, senior managing director at CBRE.
- Occupiers’ use of real estate to recruit and retain labor will continue to rule the industry, in spite of a gap between what landlords and tenants want that has been widening, according to Whitley Collins, global president of advisory and transaction services and the occupier business lines.