ORLANDO, Fla. – Nov. 7, 2016 – Commercial real estate has steadily recovered in recent years, sustained by improving job growth and strong demand for multifamily housing.
Looking ahead to 2017, growth is expected to flow into the smaller markets, according to a commercial real estate forecast session at the 2016 Realtors® Conference & Expo.
Lawrence Yun, NAR chief economist, and K.C. Conway, senior vice president of credit risk management at SunTrust Bank, expressed confidence that commercial real estate activity should remain on an upward trajectory, but with more uncertainty given the likelihood of a rising interest rate environment in 2017.
The commercial real estate sector is on firm ground in spite of the numerous global and domestic headwinds that continue to keep U.S. economic growth in a headlock, said Yun. His prediction: Given the slow growth economic environment, instability overseas and the probability of a rate hike by the Federal Reserve in December, investors are expected to take a cautious approach in the months ahead. Yun said this would likely lead to a modest decline in commercial property prices, especially in Class A assets in larger markets.
"Prices in smaller markets should continue to climb with strong tenant demand and declining supply supporting growth," said Yun. "As job creation continues, commercial real estate and vacancy rates will be stable across the country."
Conway's remarks centered on the key commercial real estate sectors, investments and capital market trends. He thinks the conditions supporting commercial real estate expansion will remain strong as long as the Federal Reserve remains dovish on interest rates.
"Housing and consumer spending are the two components buoying the economy," Conway said. "If the Fed increases short-term interest rates, both of these components will be affected, which could potentially lead to a recession."
"While the global economy remains in trouble with high debt ratios, the general state of commercial real estate in the U.S. remains strong due to high multifamily starts and renters occupying quickly," concluded Conway.