The Commercial Real Estate (CRE) industry now seems to be in a solid grip when compared to the previous years. While the US economy continues to progress, the investors are seeing incredible performance across most of the property types and markets. So, what would be the future of Commercial Real Estate? Will it be fruitful? Here are the 4 trends that are expected to play a significant role in the on-going year.
- Global Urbanization:
It looks like the global urbanization trend continues in US as it does in the other parts, as the Millennials and boomers lookout for enhanced access to jobs and amenities, from shopping to healthcare. It’s been noted that, the US urban population has increased by 12.1% from 2000 to 2010, outpacing the nation’s overall growth of 9.7%. And, even the sub-urban seem to be taking more of an urban form, having mixed-use development and limited automobile dependence. While this trend of urbanization continues, it certainly creates a huge demand for retail, housing, offices and other property types.
- Rise in Interest Rates:
The interest rates seem to rise for sure this year; the forecasts may vary, but it’s more likely that, the Federal Funds Rate (FFR) will rise at least to 1% in 2016, with the treasuries of 10 years pushing fractionally higher towards 3% mark. There are number of factors for the interest rates being low for now, like limited inflation and the strong dollar. But, the Federal is more likely to weigh the effects of each and every move before it adds an additional friction to the current economic growth trends.
- Increased Capital Flows:
US property market is the most stable and transparent market in the world because of which it has been an easy choice for many investors. According to Real Capital Analytics (RCA), a research firm, just the foreign purchases of US real estate properties rose up to $62 billion with Norway, Canada, China and Singapore leading the wave. Looking at this statistics, a substantial proportion among the Association of Foreign Investors in Real Estate, expect increase in investments in US.
- Limited Supply Additions:
Limited supply additions seem to continue with only modest supply growth in the sectors like multifamily housing, student and senior housing, single tenant industrials and so on. As the last recession was a bit deep and protracted, the lending sources were extremely doubtful about funding new constructions. Also, many local and regional banks were hit by the residential mortgage crisis, and both the commercial and residential real estate were seen as highly risky sectors. Because of this many lenders decided to leave real estate, which resulted in limited supply.
Looking at the above mentioned points, we can say that the property landscape of US in 2016 will almost be similar to that of 2015. Also, many economists say that, employment situation of US would remain on its current path adding the demand for housing in various forms.