CBRE: Capital Markets Remain ‘Fairly Healthy’

The capital markets environment–including debt and equity investment volumes as well as pricing and performance–remains fairly healthy, but saw less activity and less growth than a year ago, reported CBRE, Los Angeles.

The CBRE third-quarter U.S. Capital Markets Overview report called the environment comparable to the prior two quarters. 

“Comparisons to 2015 continue to create apprehension in the marketplace,” CBRE said. “Yet by nearly all measures, 2016 is still an outstanding year for commercial real estate capital markets activity, pricing and performance.”

Looking at the near future, CBRE said the “moderations” that have characterized 2016 compared to last year will likely continue into 2017. “The trends in 2017 should not change the character of capital markets dramatically,” the report said. “However, these trends would still necessitate evolving strategies to find the best investment opportunities and make the best hold/sell decisions.”

In addition, Donald Trump’s recent presidential election could add new dimensions to how 2017 could evolve, CBRE noted. “Possibly the most impactful change would be a higher interest rate environment,” the report said. 

CBRE said three principal conditions affected third-quarter capital market performance. “First, overall, the property markets experienced favorable fundamentals, with demand outpacing new supply, vacancy declining and rents rising at above-historical averages.” But property market performance gains continued to moderate, the report said.

Second, the U.S. economy continued to expand at a “moderate” pace, CBRE said. Following a disappointing first half with just 1.1 percent gross domestic product growth, GDP grew at a 2.9 percent rate in the third quarter and U.S. payrolls grew by 575,000 jobs. 

“Third, the U.S. presidential election added a degree of uncertainty to the economic climate,” CBRE said. “At a minimum, there’s evidence that some investment decisions were deferred until after the election.”

The capital markets environment should remain favorable over the balance of 2016 and into 2017, CBRE said. “Continued economic expansion, positive property fundamentals including very moderate construction except in multifamily, low borrowing costs and lack of favorable alternative asset choices should keep investment interest levels high in U.S. real estate,” the report said.

But more moderate returns and uncertainty about value growth are likely to continue, the report said: “CBRE Research expects a more conservative environment in the near term, but still one that remains favorable.”