Commercial Investment Real Estate July/August 2017 | Page 27
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any sports analogies are being thrown
out to describe how close the U.S. com-
mercial real estate market is to its cycli-
cal peak. Regardless of whether fans are
keeping score based on quarters, innings,
or overtime, time is still left on the clock.
It is no wonder that the maturity of the market
cycle is garnering plenty of attention. The U.S. com-
mercial real estate market is now eight years into its
current economic expansion, which is lengthy by
historical standards.
“I don’t see a lot of risks to the cycle in 2017,” says
Ryan Severino, chief economist at JLL in the New
York City metro area. “I don’t even see all that much
in 2018. I think we have at least a couple of years
before we start to have that question about is the
clock ticking or not.”
Slowing Momentum
Yet there are signs that the momentum is slowing.
“The commercial real estate market right now is
clearly late in the cycle overall, but that is some-
thing that needs to be dug deeper into both by mar-
ket and asset type,” adds Spencer Levy, Americas
Head of Research for CBRE.
Specifi cally, softening is occurring in areas, such
as central business district offi ce rents, CBD mul-
tifamily rents, and high street retail. Weakness also
is appearing in peripheral B and C malls and power
centers. At the same time, other sectors are still quite
strong, such as industrial, suburban offi ce, and sub-
urban multifamily, and Class B and Class C multi-
family, according to Levy.
Market cycles also vary widely based on geogra-
phy, with some metros that have raced toward the
peak, while others have proceeded at a slow pace
and have greater upside potential ahead. “There is
no such thing as a national real estate market. Every
market and economy is local in nature,” says Ted C.
Jones, Ph.D., chief economist and senior vice presi-
dent at Stewart Title Guaranty Co. in Houston.
For example, Houston has not created any net new
jobs during the past two years. However, the market
added more than 20,000 new apartment units last
year. “We are seeing a pretty good erosion in Class
A apartment rents,” Jones says.
However, Jones remains bullish on the economy
overall. Most economists are forecasting favorable
economic and job growth, which bodes well for the
broader commercial real estate market.
Gross domestic product growth did decline to 1.6
percent in 2016, but it is expected to pick up more
speed with a rise to 2.3 percent in 2017 and 2.6 per-
CCIM.COM
cent in 2018 before pulling back to 2 percent in 2019,
according to the latest ULI Real Estate Consensus
Forecast released in April 2017.
The ULI Forecast for employment anticipates
good, but lower, levels of growth ahead. The U.S.
added 2.24 million jobs in 2016, and those num-
bers are expected to decline to 2.20 million this year,
followed by another 1.90 million in 2018, and 1.55
million jobs in 2019.
“We think that the jobs situation is going to
improve late this year and probably early next year
— if the new Trump administration is able to get
through some of its fi scal stimulus policies,” Levy
says. “If we can’t get major tax reform done, I think
we are at risk of a much more muted growth profi le.”
Stealing the Show
Industrial has been on an incredible run over the
last several years, thanks in large part to the rise of
Real GDP Growth
3.3%
2.7%
Actual
2.5%
1.8%
20-Year Avg. (2.33%)
2.4% 2.6%
2.2%
1.6%
Forecast
1.7%
2.3%
2.6%
1.6%
2.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
–0.3%
–2.8%
Sources: 2005–2016, Bureau of Economic Analysis; 2017–2019, ULI consensus forecast. Note: The previous
ULI consensus forecast (released in October 2016) projected 2.1% and 2.0%, respectively, for 2017 and 2018.
Industrial/Warehouse Availability Rates
Actual
11.7%
10.0% 9.8% 9.9%
14.1%14.0%
13.0%
12.3%
10.8%
Forecast
9.8%
20-Year Avg. (10.3%)
8.9% 8.2%
8.0% 8.0% 8.4%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Sources: 2005–20 16 (Q4), CBRE; 2017–2019, ULI consensus forecast. Note: The previous ULI consensus
forecast (released in October 2016) projected 8.6% and 8.7%, respectively, for 2017 and 2018.
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