Commercial Investment Real Estate March/April 2019 | Page 12

MARKET
FORECAST
Slowing Ahead
The new year will bring decelerating development and leasing.
by Jay Olshonsky, FRICS, SIOR
Seeking New Locations
The ongoing migration of people and businesses merits monitor-
ing. Despite the good news of Amazon and Apple expansions
with jobs promised in Northern Virginia; Nashville, Tenn.;
and Austin, Texas, the positive effects on office and retail
leasing will be highly localized, with just a handful of communi-
ties benefiting.
The recent announcement of McKesson Corp.’s move of its
headquarters from San Francisco to Dallas, where it already has
a campus, could be the tip of the iceberg. New tax laws take
effect in April, and many residents of high-cost states such as
New York, Connecticut, and California may consider relocating
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March | April 2019
to lower-cost areas. Potential destinations include, in particular,
non-personal income tax states like Texas, Tennessee, and Flor-
ida. In announcing its move, McKesson Corp. cited reasonably
affordable housing, good school systems, and a business-friendly
environment. Because the country is essentially at full employ-
ment with unemployment at its lowest in 17 years, companies
may move for employee retention. It’s easier to fill jobs when the
area offers attractive community amenities.
Sector Breakdown
In the property sectors, industrial, manufactured housing, and
seniors housing still are going strong. Most of the primary
industrial markets in the U.S. have sub-5 percent vacancy rates,
and they are below 2 percent in Los Angeles-Long Beach;
Chicago; Houston; Dallas-Fort Worth; Riverside-San
Bernardino-Ontario, Calif.; Atlanta; New Jersey; and all the
port cities. Low vacancy rates largely are driven by consumer
spending and e-commerce, particularly the Amazon effect. The
first mile-last mile battle that started in earnest two years ago
is approaching its midway point, and it will continue to drive
industrial markets until a recession slows it down. Retailers
reported that e-commerce sales, which do not include food and
gas, jumped 26.4 percent around the 2018 Thanksgiving holiday
compared to the previous year, according to Adobe Analytics.
COMMERCIAL INVESTMENT REAL ESTATE
D
evelopment and leasing activity have slowed in most
core and secondary U.S. real estate markets thanks
to stock market volatility, rising interest rates, the
waning effects of tax cuts, rising wages, a labor sup-
ply shortage, cooling job growth, softening housing markets,
an inverted yield curve, and fatigue after a nearly record-setting
period of economic expansion. For 2019, expect further decelera-
tion as the year unfolds.
Key business indexes have declined in Europe, which is respon-
sible for nearly a quarter of global gross domestic product, while
China’s economy continues to slow.