Experts predict this will be a strong year for property investors looking to up their commercial real estate investments in the office and industrial sectors.
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Having overcome much volatility in 2016, the industry is poised to thrive under current economic conditions, taking job gains and future fiscal stimulus from President-elect Donald Trump into consideration.
Cushman & Wakefield global chief economist Kevin Thorpe told Bisnow even the Federal Reserve’s gradual interest rate moves should not stifle job growth this year.
“Even though they’ve now raised rates twice in seven or eight years, the Fed funds rate is ranging between 0.5 and 0.75,” Thorpe said. “A normalized Fed rate is closer to 3.5%. Interest rates are still extremely low.”
Thorpe also said global volatility may send more global investors looking for safety to US real estate markets. Here’s what we can expect in the office and industrial sectors this year.
Office
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Taking into account the 737,000 new office jobs gained last year, there’s still room to grow in the office market — though tightening in the labor market is expected to soften demand a bit. Absorption is forecast to end 2016 at 50.2M SF, down from 81.9M SF in 2015. Still, Thorpe said the sector is a “pretty good bet” for investors.
“This may be a good year to take advantage of pricing dislocation in the suburbs,” Thorpe told us. “Suburban office is a growth story in the making and the fundamentals are improving more than most people realize.”
Industrial
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Industrial remains a hot asset moving into 2017, and Thorpe does not see that shifting any time soon. Cushman & Wakefield expects upbeat consumer spending this year, which will translate into additional sales for both brick-and-mortar and e-commerce players. Net absorption is expected to surpass 280M SF for 2016, and C&W estimates this year will hit about 250M SF as new demand is met with increasing supply. The prevalence of e-commerce and the growing demand for warehouse space and distribution centers in markets close to customers continues to make this sector a viable option for investors looking to yields.
“Industrial remains very, very hot. We’re looking at unprecedented levels and demands for industrial space,” Thorpe said. “But investors need to be careful with port cities, primarily because the strong US dollar's likely to impact trade flows.”
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