Real Estate Thanksgiving

By Suzann D. Silverman

Editorial Director Suzann D. Silverman

With the Thanksgiving table cleared and the new year rapidly approaching, it’s a good time for reflection on this year and consideration of what’s to come. At the cycle’s peak, we’ve had a pretty good year, if not a spectacular one. Whether we can sustain that remains a question for some sectors, given a mix of supply overhang, decreased demand, policy changes and social shifts. But even those challenges come with a side helping of possibilities, and for that we can be grateful.

Take, for example, the retail sector. It has suffered an exponentially higher number of store closings this year among fashion and department stores as e-commerce market share increases. Owners of brick-and-mortar assets, challenged to backfill vacated space, are introducing fresh uses to their properties and devising new methods to attract customers. Meanwhile, other retailers, such as dollar stores, are expanding and helping fill part of the void.

Also on my Thanksgiving list:

■ Continued multifamily development in the face of a peaking sector has raised concerns, particularly for the well-supplied high-end segment. But a slowdown in deliveries stemming from a construction labor shortage is providing an unexpected benefit, pushing back many scheduled 2017 deliveries to next year, according to the most recent Yardi Matrix U.S. Multifamily Outlook. That report also forecasts a leveling off of supply in 2019.

■ Overall, real estate valuation has experienced a slowdown over the past six months, driven primarily by a drop in industrial and multifamily prices, according to data from online real estate platform Ten-X. It is particularly difficult to find solid returns in major markets. But investors have found good deals in new places, such as secondary metro areas benefiting from universities, or institutions venturing into the industrial sector.

■ Speaking of which, the industrial sector has benefited from the rise of e-commerce, achieving record performance numbers in the third quarter, according to JLL data. Vacancy came in at just 5.2 percent, with e-commerce company expansions accounting for 25 percent of demand for leasing and absorption outpacing new supply.

■ Industrywide, liquidity remains strong, with CMBS and the government-sponsored enterprises compensating for caution among commercial banks and life companies. Originations for the first three quarters were up 17 percent, and the third quarter alone posted a 21 percent year-over-year increase, according to the Mortgage Bankers Association. Investment sales also picked up, clocking in at $113.2 billion, Real Capital Analytics reports.

■ Both sales and financing, of course, have been helped by the continued low interest-rate environment, notwithstanding the two hikes so far—and third expected—by the Federal Reserve this year. That environment is expected to remain favorable when Jerome Powell assumes the central bank’s chairmanship.

All in all, plenty of reason to give thanks.

Originally appearing in the December 2017 issue of CPE.