Decoding 2016

When I was in grade school, I was a pushover for the special offers that often turned up on the back of a cereal box. You collected the requisite number of box tops, mailed them in and waited impatiently for your prize. Maybe you’d get a decoder ring capable of unraveling super-secret messages. Lately I’ve been wishing that I could still send away for a decoder, but one that can unscramble messages about what’s ahead for commercial real estate in 2016. It’s hard to recall a time when the signals were more intriguingly varied.

For example, I’ve been thinking a lot about some provocative comments made last October by Ryan Severino, REIS Inc.’s senior economist & director of research. Speaking at Multifamily Executive’s annual conference in Las Vegas, Severino offered a contrarian view to the notion that the multifamily sector will continue full steam ahead indefinitely. “It’s going to be very challenging going forward because everybody and their mother is building apartments today,” Severino warned. “Be careful—it’s not going to be as easy over the next four or five years.”

Or take retail investment. During the International Council of Shopping Centers’ annual New York City convention in early December, Faris Lee Investments’ CEO Rick Chichester told me that business is bustling, the market looks generally sound and retail rents are stabilizing. Most encouraging of all, buyers are “going through a very disciplined process to underwrite the value of the investment.” One side effect of that discipline, however, appears to be occasional pricing dislocation. Chichester explained that buyers and sellers sometimes find themselves far apart on values for multi-tenant power centers and older grocery-anchored properties.

CPE’s 2016 forecast issue reflects this variety. In his quarterly column on economic issues, the National Association of Realtors’ George Ratiu makes the case that sound fundamentals and untapped investment potential portend a strong year. In FPL’s annual survey of hiring and compensation, Jeremy Banoff writes that payouts for 2015 are likely to reach record levels. Unlike the past few years, compensation will also vary considerably by property category and geographic market. Elsewhere in the issue, Dees Stribling notes that leading investors are planning robust programs, even as speculation grows that pricing is near its peak.

These apparently contradictory signals might actually add up to a realistic snapshot of the market. Keeping that in mind, CPE will continue exploring the trends, opportunities and challenges that shape strategy. The issues keep evolving, so we’ll apply that time-honored way of decoding them, and ask the right questions.