CBRE/Transwestern: CRE Markets Can Withstand Volatility

Despite some volatility in the market, U.S. commercial real estate markets should continue to perform well in 2019, analysts said.

Elizabeth Norton, Managing Director of Research with Transwestern, said the likelihood of dramatic political or economic policy changes is low based on the recent elections, “and this paves the way for continued, albeit slower economic growth through a good part of next year.”

Transwestern surveyed its brokers in November. They said strong consumer and business confidence and record job growth is contributing to “healthy” commercial real estate fundamentals across property types, with strong liquidity from both debt and equity.

CBRE Global Chief Economist and Global Head of Research Richard Barkham said “sustained” momentum from the U.S. economy’s extended economic expansion bodes well for major commercial real estate asset classes, which could lead to additional allocation from institutional and international investors, a hunt for opportunities in secondary markets and stronger construction completions in sectors such as office and multifamily.

“Continued economic growth bodes well for all sectors, sustaining job growth for the office market, consumer confidence for retail and industrial, and entity-level, mergers-and-acquisition activity for the capital markets sector,” Barkham said. “We foresee compelling opportunities in secondary markets, given that we haven’t experienced cap-rate convergence in those markets or even in many of the crowded primary markets.”

Barkham agreed Norton that 2019 economic growth could be less than in 2018 given the potential drags of inflation and the slowing single-family housing market, but he predicted “healthy” GDP growth of 2.7 percent.

CBRE said next year’s investment volume should match the strong transaction levels seen in 2018. “M&A momentum should carry into 2019, especially since individual assets are in limited supply and generally priced at a premium,” the firm’s 2019 Outlook report said. “Borrowing costs may ease up due to slowly rising bonds rates, but the amount of equity available for investment in real estate should support transaction volume and keep cap rates in low in some cases. Specifically, various secondary markets may register cap-rate decreases in 2019.”