Avison Young: Possible ‘Waning Days’ of CRE Cycle
This year opened with some uncertainty that could affect the way owners and occupiers invest in and operate commercial real estate, reported Avison Young, Toronto.
“It has been more than six years since the Great Recession,” said Avison Young Chair and CEO Mark Rose. “The financial and real estate markets appear stable as we begin 2016, but variables now surfacing could undermine short-term prosperity. The year ahead seems to be the waning days of a prosperous cycle–perhaps even a cyclical top in liquidity, pricing and transaction velocity.”
Rose said U.S. commercial real estate is entering a transition period. “Our industry has always been cyclical, and factors that negatively affect pricing or trading velocity are, in turn, countered with opportunistic buyers and lessees,” he said.
Looking forward, Avison Young predicted 2016 will be a choppy but ultimately stable year. “In the U.S., interest rate increases mark a return to monetary normalization,” the firm said. “The U.S. interest rate increase could actually have a positive impact on the markets.”
In addition, presidential election years generally display less dramatic economic movement, which Avison Young President of U.S. Operations Earl Webb said should hold true in 2016 barring some unforeseen out-of-market event that could disrupt financial markets. “We foresee solid investment activity, continued job growth, and, as such, fundamental rent growth in the office, industrial, retail and multifamily sectors,” he said.
Though transaction volume flattened in late 2015, the year returned double-digit U.S. sales growth exceeding $425 billion. “A significant amount of capital poured into U.S. commercial real estate markets in 2015, and more of the same is expected in 2016,” Avison Young said. Canada led foreign investment in the U.S. in both 2014 and 2015, the firm reported.
Canadian investors purchased $24 billion worth of U.S. assets through November, leading all other countries by a wide margin.
“We foresee solid investment activity, continued job growth and, as such, fundamental rent growth in the office, industrial, retail and multifamily sectors,” Webb said. He noted that cap-rate compression has largely run its course, “but fundamental growth has not–a situation that will create abundant investment opportunities, provided that investors have realistic expectations, are creative and manage their investments aggressively.”
