Commercial Investment Real Estate March/April 2019 | Page 13

Multifamily faces challenges due to rising construction costs in both labor and materials. One developer recently said that construction costs are rising roughly 1 percent a month, or 12 percent a year. Office markets mostly are flat, with exceptions in cities like Houston, New York, and San Francisco. Companies that are adding office jobs continue to shrink office space allocations on a per-person basis. Work benches, open cubes, and creative/collab- orative space dominate interior designs and tenant improvements. Retail development is practically nonexistent and, by some estimates, more than 20 percent overbuilt. Apparel stores are in retreat, while malls are struggling to stay open and find the right tenant mix. In recent years, more than 300 U.S. malls have closed, with more likely to follow. Retail rents largely are down, with the change mostly attributed to America’s changing shopping habits. Notable exceptions in retail that are outperforming other cat- egories are neighborhood, food-anchored shopping centers, and off-price stores, such as T.J. Maxx, Ross Dress for Less, and home furnishing and improvement stores. The self-storage real estate sector rebounded in 2013 and started breaking record valuations in 2015 and 2016. Select markets and cities now are showing signs of overbuilding. The national average of new supply as a percentage of existing supply was 8.7 percent in July 2018, according to MJ Partners Real Estate Services, yet it was 28 percent in Nashville and 23 percent in Portland, Ore., for example. Sell Now, Rent Later The landscape is not entirely bleak. As NAI Global reported last summer, thriving secondary and tertiary markets like Salt Lake City, Utah; Orlando, Fla.; Central Wisconsin; and even Ocala, Fla., are “getting calls from national companies for office space requirements that we have not seen in years.” That said, most economists expect job growth to slow in 2019 and 2020. As development and leasing activity continues to slow, property owners should make any reasonable deal now and not hold out for top dollar, because it will likely be worse in six, 12, or 18 months. Conversely, tenants (except most industrial ten- ants), should wait to sign or renew a lease if possible; rates are likely to come down. Jay Olshonsky, FRICS, SIOR, is president and CEO of NAI Global. Contact him at [email protected]. NAI Global, a commercial real estate brokerage firm with more than 400 offices, annually completes in excess of $20 billion in commercial real estate transactions throughout the world. REGISTRATION NOW OPEN CCIM Midyear Governance Meetings March 30 – April 3, 2019 La Cantera Resort & Spa San Antonio, Texas Help shape this organization and its role in the commercial real estate industry. REGISTER TODAY www.ccim.com/governance-meetings CIREMAGAZINE.COM March | April 2019 11