CBRE: Moderate CRE Growth in 2016
Measured economic growth with low interest rates–punctuated with bouts of pessimism and volatility–will likely continue, supporting moderate commercial real estate rent and investment sales volume growth globally, said CBRE, Los Angeles.
“The current environment of variable but generally improving growth in the developed world, alongside low interest rates and low inflation, is very supportive of consumers and commercial real estate markets,” said CBRE Global Chief Economist Richard Barkham.
Barkham cited several potential risks to growth, including volatile stock markets, rising interest rates in both the U.S. and the U.K., financial stress in emerging markets and a slowing Chinese economy. “However, because consumers in the U.S., Europe and even China are in good shape, we think the global economy is strong enough to withstand these challenges and that the real estate and economic reality will be better than expected in most places in 2016,” he said.
Global prime rents across the three major property types–office, industrial and retail–should grow 2.2 percent globally over the remainder of 2016, CBRE predicted. The Americas should see commercial real estate rents rise 3.4 percent as consumption growth and rising employment combined with comparatively limited new supply levels stimulate demand.
Though global commercial real estate investment markets should remain active in 2016, the pace of growth will likely slow after six years of recovery and price appreciation, CBRE said. It expects worldwide investment sales volumes to grow by 4 percent in 2016. Low borrowing costs and continued rent growth should continue to make commercial property investment attractive to investors and the “wall of capital” will likely remain substantial. On balance, there will likely be downward pressure on cap rates, but less strong than recent years due to rising U.S. interest rates and the potential for weaker demand for assets from oil-based economies.
Most U.S. office markets should tighten further as demand for space will likely outpace limited new development, CBRE said. Demand for retail space should pick up this year as well as consumer sentiment–which recently reached its highest level in nine years–and rising incomes support stronger retail sales. And robust demand from e-commerce and third-party logistics companies for warehouse and distribution space will continue to reshape the industrial and logistics market.
“With e-commerce sales expected to grow 23 percent in 2016, according to eMarketer, demand for modern big-box facilities will remain strong,” CBRE said. “Many logistics users will also seek smaller in-fill industrial facilities within major metros to meet growing consumer expectations for same- and next-day delivery of online orders.”
