While challenges face many of America’s commercial real estate markets, Realtors specializing in the sector should have confidence for growth to remain steady in the coming year. That’s according to the sentiments of two economists who spoke at a commercial economic issues and trends forum this month at the 2018 Realtors Conference & Expo in Boston.
National Association of Realtors’ Chief Economist Lawrence Yun was joined by Sean Snaith, director of the University of Central Florida’s Institute for Economic Competitiveness, to discuss their outlook on the commercial real estate market.
Both speakers agreed that the commercial real estate market has improved and that continued growth in the economy will accelerate leasing and property management activity. However, difficulties remain regarding regulatory issues and rising interest rates, they said.
“The economy is strong and we’re seeing solid job gains, with no triggers to cause an economic recession. The mix of rising interest rates has led to some uncertainty, but the continued economic growth has the commercial market on solid ground,” Yun said.
Commercial real estate prices are forecasted to decrease in response to the 93 percent price gains the market has experienced over the last eight years. Low interest rates have pushed Americans to invest in commercial real estate as borrowing costs remain low. Rising interest rates, however, will make buyers less willing to pay higher prices.
Yun made clear that he does not expect a recession in 2019 as job creation continues, unemployment sits at 3.7 percent and consumer confidence remains at its highest level in over a decade.
Yun said that sales transactions for commercial real estate are trending upwards as the Realtor median dollar value of property deals is over $600,000. The median lease value was $215,000 in 2017 as multi-family constitutes nearly 50 percent of all commercial investment transactions.
Rental growth is beginning to taper at 3.6 percent and vacancy rates are low across the country. Retail sales are growing, with e-commerce increasing more than twice as fast as traditional retail sales. Office demand remains strong due to rising employment while net rental growth sits at historic levels.
Dr. Snaith touched on tax reform, trade policy and financial regulation. “We’re experiencing a boost in government spending, which grows gross domestic product. Policies like tax reform have led to profits, in turn feeding investment spending. Looking ahead, regulatory relief is the special sauce needed for the commercial real estate market to thrive even further,” Snaith said.