Are There Surprises Ahead for 2019?

DALLAS—As the first month of the year comes to a close, the CRE industry is continuing its trajectory from last year, with no visible signs of adjustment thus far. The influence of proptech is still a major influence, which should remain for the foreseeable future.

But political and economic forces are being to stir and many are wondering if there are any surprises on the horizon/? In this exclusive, Greg Fuller, president/COO at Granite Properties and NAIOP 2019 chairman, recently discussed some of the trends coming into play this year, office demand predictions and CRE challenges.

GlobeSt.com: What are the major CRE trends that you expect to dominate in 2019?

Fuller: Proptech is affecting every sector and every angle of commercial real estate, from development to brokerage to how the tenants use the space. The venture capital funding flowing into this is rising quickly and it seems everyone is piloting new approaches, some of which have the potential to create great disruption.

Opportunity zones will be explored and the program will be clarified. While much of the development will be in already gentrifying areas, the opportunities for investment could yield tremendous results. The industrial boom will continue, albeit at a much slower pace that may not feel as good as the past. The NAIOP industrial space demand forecast for third quarter 2018 said that quarterly net absorption will moderate to 56 million square feet per quarter in 2019, down from an average of 60 million in the last half of 2018. Technology firms like Amazon, Google, etc. will continue to dominate the headlines for office space. But overall rates are peaking in most markets and demand is slowing a bit.  The lack of supply will be a good thing should the market slow or take a pause. Investment in CRE as an asset class will continue to be strong in 2019. Retail assets ripe for redevelopment will be in high demand.

GlobeSt.com: What are your predictions for office space demand?

Fuller: Office markets should remain fairly stable but we anticipate that demand will taper off a bit. From an investment perspective, secondary and tertiary markets are seeing demand as investors search for yield. Well-located 18-hour environments rich in amenities will continue to be the winners chasing tenants. Development will be cautious or pre-leased in 2019. Coworking and flexible office demand continues to grow as tenants want shorter leases and nontraditional workspaces. But consolidation among operators could shake it up, as well as generous lease terms that are beginning to expire.

GlobeSt.com: What do you foresee as several challenges facing the CRE industry?

Fuller: Tell me what interest rates, the trade issues and the political environment will be a year from now and I’ll tell you what the demand for space will be. Most tenants and investors hate economic and political uncertainty and we are in uncertain times. The Fed says it will raise interest rates twice in 2019, but we will see what happens. Economists predict 2019 will be a strong year, but not as strong as 2018, as GDP will most likely decline somewhat. The costs of construction materials and labor have continued to rise and will mostly do so for the foreseeable future due to trade tensions and labor shortages.

GlobeSt.com: As the 2019 chairman of NAIOP, what are you most excited about in 2019?

Fuller: NAIOP’s advocacy efforts yielded positive results for our industry and our members in the latest tax reform changes. As our industry starts to face headwinds, we will continue those efforts to make those changes permanent, as well as work towards sound energy efficiency goals and increased funding for infrastructure and transportation.