2016 is over! We are moving on to 2017 and with it, comes a stream of new trends to the commercial real estate world. Below are a few of the trends that we believe will be a big factor in our new year.
The Federal Reserve announced in January it is raising interest rates by a quarter of a percentage point.
In addition, the Treasury yield moved up more than 50 basis points since the Nov. 8 presidential election, and was hovering around 2.5% ahead of the rate hike. (Forbes)
There are some analysts who believe that there could be a growth due to economic stimulus, and deregulation. The economy is in a state of uncertainty based on some of the recent political happenings with the United States and other world leaders.
Higher interest rates could constrain property deals by making real estate less affordable, but it can also provide an incentive for borrowers and lenders to be more cautious in a bid to reduce risk. And higher interest rates typically signal a strong economy, which tends to be associated with a strong real estate market.
Global Economic and Political Uncertainties
The United States election has stirred some trouble in the world and has continued the popular trend of nationalism which will rub off on other countries, such as Germany and Italy.
The United States should prepare itself for higher tariffs with other countries, specifically Mexico and China. And expect higher tariffs to increase consumer and industrial prices that the United States imports.
For U.S. markets—and real estate in particular—the impact is likely to be largely positive as U.S. assets become more attractive and valuable to global investors. Enhanced foreign investment in U.S. real estate markets probably can be expected as the United States becomes even more of a safe haven for investors.
Looking ahead, the IMF predicts higher economic growth this year as emerging markets find their footing and commodities continue their recovery. Stronger global growth is likely to provide more real estate inflows for the U.S. market.
Restored Confidence to Drive CRE Strategy
A feeling of renewed confidence is driving how investors are approaching their strategic planning for 2017. Property values are approaching 2008 levels, but this time it’s not a false bubble. The market is not overleveraged, and the fundamentals are stronger. The anticipated lifting of regulatory barriers and the lowering of tax rates should trigger CRE growth in sectors ranging from multifamily housing to hospitality to industrial. Interest rates will inevitably rise, but the industry as a whole seems well-poised to absorb any adverse impact.