2016 Commercial Real Estate Market Outlook

Lansing

Construction cranes abound throughout multiple municipalities, the best visual for proof of economic development. How these new developments will impact the existing real estate landscape in the future will play out over time, as the overall economic fundamentals impact local supply and demand.

Locally, the industrial market continues to lead the charge as occupancy and lease rates soar. Retail is holding its own with mixed use and out lot developments on the rise. The office market is tightening somewhat as activity in general is slowing. Corporate occupiers are focused on containing rising operating expenses and determining how labor and skill set shortages will drive their real estate consumption strategies in 2017 and beyond.

Overall Economy

Expect 2016 to be a year of volatile stock markets but steady global economic growth; with U.S. consumers spending the gains from rising incomes, low interest rates and low commodity prices. Continued financial turmoil will emanate from emerging economies in the region as currency depreciation and manufacturing weakness take their toll.

The current chief risk for the U.S. economy and commercial real estate markets is how the Federal Reserve manages interest rate increases. Specifically, the gap between market expectations and actual policy, bears watching.

global-gdp

Capital Markets

The capital markets environment remains extraordinarily active and favorable. U.S. investment volume is forecasted to show a single digit gain over 2015’s soaring double digit gain, while foreign investment continues to show strong growth.

Low borrowing costs and the prospects of rent growth and volatility in other asset markets mean the pool of capital targeting real estate will remain substantial. On balance, there will be downward pressure on cap rates, but less strong than in recent years due to the slow rise in U.S. interest rates and weaker demand for assets from oil-based economies. One of the principal issues for 2016 — one governing both the economy and the commercial real estate capital markets — is what will happen with U.S. interest rates.

global-investment

Multifamily

Expect multifamily markets to begin loosening after several years of exceptional performance. Overall, demand will remain strong under favorable demographics, shifting lifestyle preferences and sustained economic expansion. However, the wave of supply – delayed from 2015 and pushed into 2016 for a variety of reasons – will put upward pressure on vacancy.

multi-family

Industrial & Logistics

E-commerce will continue to reshape the logistics market. Demand for big-box space will remain strong, but logistics users will ramp up efforts to secure smaller infill locations to meet the consumer’s growing expectation for same-day or next-day delivery. Economic health varies across the region, and strength in manufacturing and trade and commodities prices will bear
upon fundamentals.

e-commerce

Office

With strong job growth and limited new supply, the U.S. office market is projected to tighten further in 2016. Supply trends vary significantly by market. In other, slower-to-recover markets — and especially in the suburbs — rents have not reached levels that justify development, particularly given rising construction costs. Occupiers remain focused on expense management. Many U.S. markets are trending in favor of owners; emerging “urban-suburban” submarkets could present compelling opportunities for occupiers to relocate to a strong base of talent while containing costs.

rent-growth

Retail

U.S. consumers are a relative bright spot in the global economy, thanks largely to the rapidly improving U.S. labor market. With the significant tailwinds of lower gas prices, easier access to credit and asset price gains, confidence is brimming. The upbeat outlook for consumers overall bodes well for an acceleration in retail space demand, which has been inching higher at a measured pace.

Other segments experiencing continued growth include restaurants, smaller-format grocers, supercenters and healthcare and discount stores. More ambitiously, developers are incorporating other land uses into retail projects, integrating apartments, condos, offices and hotels into developments to create 24-hour centers of activity.

retail

Whether locally, nationally or globally, barring any unforeseen geopolitical influences, 2016 should be another solid year in commercial real estate.

Sources: “2016 Americas Real Estate Market Outlook” by CBRE Research © CBRE, Inc. 2016, “2016 Global Real Estate Market Outlook” by CBRE Research © CBRE, Inc. 2016, CBRE MarketViews H2 2015 by CBRE Research © CBRE, Inc. 2016

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