2017 was a strong, albeit uncertain, year for the commercial property market and it looks as though 2018 could be more of the same. With the U.S. economy improving and unemployment rates dropping, commercial property investors could see an increase in the strength and growth of their portfolios. Even the central bank sees U.S. growth as stable which usually means that lending rates and fixed-income rates of return will be very low by historical standards.
What is playing a part in the upcoming success of the commercial real estate market? Let’s take a look at four trends that are going to play a significant role in commercial real estate for 2018.
- Global economic and political uncertainties. The UK’s Brexit vote has affected countries around the world and as this global uncertainty is still to be fully understood, some real estate investors are apprehensive about investing in the commercial real estate market in the UK. This makes the market in the U.S. more attractive to foreign investors and could bring prices up.
- Low interest and cap rate environment. Although we will see another rate hike sometime next year, it won’t be much. This is a result of inflation coming in under the Fed’s expectations. Combine that with a lower than expected global economic growth pattern and the Fed’s will more than likely avoid adding additional friction to our smooth economic growth.
- Foreign investment in the United States. Brexit, along with continued global economic and political uncertainty, is causing more international capital to flow into the U.S. real estate market. Even China and much of Europe is seeing slow growth and weakening currencies. The trend to invest in U.S. markets began to strengthen in 2015 when foreign purchases of U.S. real estate assets rose to more than $87 billion. That number is up from just $4.7 billion in 2009.
- Slowing new supply. Commercial real estate supply will remain limited in some parts of the country as new development is limited to multifamily, student and seniors housing and single-tenant industrial. As a result of the last recession, lenders are still skeptical about new construction projects but some lenders are still open to taking the risk.
With these trends affecting the commercial real estate market, many investors are seeing new opportunity for growth and investment potential in just about every region of the country. 2018 could be the year to grow your portfolio and the commercial real estate market could be the opportunity for you.