June 01, 2018
The state of the market remains positive for 2018. Last year investments in commercial real estate proved to be fruitful, and this year promises to be strong too. There are several trends to keep an eye on for the year. Looking at the current state of the economy, there are no foreseeable circumstances that will cause any type of slowdown.
The upcoming ushering in of a new Federal Reserve chairman, has led to uncertainty in regard to how the Federal Reserve will continue to run. It has posed the question of if they will stick to the plan of raising interest rates. At the Federal Reserve December policy meeting, the forecast for three rate hikes in 2018 was not changed. This would be a continuation of the plan from last year, as 2017 had three increases as well. It seems that the ace of inflation will be an underlying factor for rate hikes. If inflation remains sluggish, it would be difficult for the Fed to find justification for additional rate increases. The commercial real estate industry would heavily benefit from the lack of significant interest rate rises, as this would allow property values and the cost of borrowing to persist at a stable level.
The impact of tax changes and Brexit will play a key role in foreign lending. The new tax laws in the United States can negatively affect foreign and U.S. banks that handle commercial real estate lending. The passing of Brexit may hinder some banks from operating out of Europe. However, the recent tax cuts have a high likelihood of benefiting real estate in a significant way. Tax reform has already provided a small boost for commercial real estate, and the industry is quite optimistic.
The office market in America should have continued growth in 2018. However, the growth should slow a bit due to tight labor market effects on tenant demand and higher completions, though it will remain positive. Retail will continue to be reshaped as it is experiencing a change in consumer expectations, demographics, and omnichannel retailing. The consumer trend is in favor of discount and off-price retail, and this will have an impact on the retail real estate environment. The industrial and logistics industry is in high demand, so the need for well-located real estate will persist.
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