CBRE: ‘Market Should Be Resilient’
Commercial real estate markets should fare well at least through December, withstanding global economic headwinds and recent volatility in equity markets, said CBRE Group, Los Angeles.
“The economic world is on edge, with heightened concerns about the potential for a global economic slowdown,” said CBRE Americas Head of Research Spencer Levy. “However, commercial real estate fundamentals are very good.”
Levy said unlike prior cycles, often marked by excessive construction and financial leverage, occupancy and rents stand at or near record levels, with lower leverage and ample liquidity. “The market should be resilient in the event of any pause in activity,” he said.
Over the past year, the U.S. averaged more than 210,000 new jobs created per month–slightly less than 2 percent of the workforce–while GDP growth averaged more than two percent per year over the past five years. CBRE expects GDP to grow between 2 and 3 percent throughout this year and next.
CBRE said the capital markets could face some challenges over the balance of 2016, but predicted they will continue to reflect many strengths. “For the U.S., investment is expected to remain very active and to register a new record volume,” the firm’s 2016 Americas Real Estate Market Outlook said.
Investment pricing may be affected slightly by higher interest rates in the U.S., but given the expected favorable economic expansion and steady flow of capital into the market, the overall impact should be quite modest, CBRE said. For the debt markets, the “wall of maturities” may cause the market some slight disruption–particularly the commercial mortgage-backed securities market–but no major problems for the vast majority of real estate investors.
Industrial Sector
The industrial sector recently achieved its 23rd consecutive quarter of positive net absorption–the longest such stretch in history–CBRE said. Availability reached to 15-year lows and the overall net rent figure could regain its prior highs in the middle of 2016.
“With the sector meeting and surpassing many of these high-water marks, some observers are understandably skeptical about how much runway is left in this cycle,” Levy said. “Our view is that conditions in the U.S. industrial market will continue to be favorable throughout 2016.”
Office Sector
Office markets will likely to vary widely in their performance over the balance of 2016, CBRE predicted. “The recently diverging paths of the energy and technology sectors–the two initial driving forces of the current U.S. recovery–illustrate the impact on office markets of industries that drive local office-using job growth,” Levy said. “Going forward, any shifts in the primary industries driving individual metro areas and submarkets throughout the Americas will bear watching and could result in disparate performances of office markets across the region.”
Retail Sector
A bright outlook for consumer spending in North America should help the retail sector see solid performance in 2016, Levy noted. “U.S. consumers are a relative bright spot in the global economy, thanks largely to the rapidly improving U.S. labor market,” he said. “Risks for the retail sector include interest rate increases, potential pullback in luxury demand from tourists due to the strong U.S. dollar and Chinese slowdown and wage growth that could fail to materialize as expected.”
Levy said retail is “reinventing itself” in the face of the ascendant e-commerce sector and changing shopping preferences. “Malls and shopping centers are focusing on their key advantage: the opportunity to provide an unparalleled consumer experience,” he said. “Retail venues are being transformed from simple places to sell merchandise into dynamic and diverse settings to which consumers will gravitate.”
