Four Trends Driving Commercial Real Estate This Year

While some major publications like Wall Street Daily, Forbes and CNBC all ran articles claiming that the commercial real estate bubble will burst last year, we can now safely say that 2016 was yet another strong year for the industry.

In reality, we have some good reasons for continued optimism this year. The broader economy is surely going to grow more this year and add jobs. The employment in the country gains continue to be strong, with unemployment rates dropping below 5% in 2016, adding to demand for CRE in a number of sectors.

Of course, with the impact of recent presidential elections, the industry is expecting changes in tax structures and regulations, which could lead to a number of new uncertainties, while opening new opportunities for growth at the same time…

1.      Foreign Investment

The most recent news indicate that real estate, among other forms of Chinese investment may be on the decline. A number of news outlets reported a couple of months ago that the country was planning to decrease overseas investments, which actually rose more than 50% in 2016.

Moreover, you also have the fallout following Brexit. If the pound and euro are both volatile, European banks will be forced to weigh the relative stability of the US CRE market, against the increased costs of capital. This naturally will put American lenders at a great disadvantage…

2.      Higher Interest Rates

A couple of months ago, the Federal Reserve announced that the interest rates will be raised by 0.25%. And as Forbes reports, since the presidential elections last November, the Treasury yield moved around 50-basis-points, and for a while was hovering around 2.5% ahead of the rate hike.

These higher interest rates could potentially make real estate in the US less affordable and consequently constrain property deal. But this could also provide an incentive for lenders to be more careful in a bid to lessen risk. Also, higher rates are always a sign of a strong economy, which is usually associated with a strong real estate market…

3.      The State of Brick-and-Mortar Retail

For years, we’ve been hearing about the inevitable death of retail real estate market. Now it seems like the initial reports were grossly exaggerated, we still cannot forget that online retail continues to grow at double-digit rates while some retail centers are becoming practically obsolete. For example, since 2010, two dozen shopping malls have been close, and more than 60 are currently on the brink…

And if regular, brick-and-mortar retailers want to survive in the current climate, they will have to adept and start incorporating some ecommerce elements into their physical space and marketing portfolios and vice versa. Alibaba, for instance, has recently announced a bid to purchase Intime Retail in an effort to combine ecommerce and physical retail…

4.      The Boom of Urban Population

Even though suburbia still presents good opportunities, since the beginning of the decade, baby boomers and millennials alike have shown that they prefer to live in dense urban cores of large cities. And as Business Insider reports, real estate is now booming in major cities across the country, thanks largely to the improving economy….

Back in 2011, population growth in urban areas in the country outpaced the suburbs for the first time in more than a hundred years. Of course, companies and employees are following all of those crowds of urbanites. If investors and developers manage to reuse previously overlooked properties and stay on top of latest commercial real estate trends, they will be able to turn these places into unique shops, offices and apartments…

Final Thoughts

The CRE market may be affected by some hard-to-gauge crosswinds this year, as the dust settles from the latest elections, and as uncertainty spins around the status of new regulations policies and other important directions of the newly formed administration.

There is a lot that is uncertain in the global economy, but one thing is certain, we’re going to see even more surprises by the end of the year. With all of these trends and issues, this year definitely promises to be a news-making year in commercial real estate.