2018 was a big year for Commercial Real Estate. With a growth of 3.5% in GDP, the United States proved that things are working out great for the people. Now that the market has benefited from the growth, we look into the future once again to get an idea of where the real estate market will stand with the help of economic and regulatory indicators.
The Economic Indicators
The economy of a country determines the direction of its high earning industries. Through the use of different economic indicators, we can predict the direction of the Commercial Real Estate market. Here are some major trends that will affect the market in 2019.
- Interest rates will go up in the present year. Because of the nationalistic and unilateral approach of the current government, it is highly likely that the interest rates will go up. The year 2018 saw an increase in the key rate to a range of 2% to 2.25% and 2019 is likely to see a modest increase.
- The GDP is said to slow down in 2019.This decrease in GDP will hurt the real estate market in a very subtle manner. However, its impact will not be a significant one as pundits see a minor fall.
- Increased labor opportunities will help the CRE market to stabilize. It is predicted that the employment ratio in the country will hit its all-time high of 60.7% in 2019. The very basis of Commercial Real Estate lies in working opportunities. The greater the employment figures, the more people will be able to afford rental properties, offices, and small businesses.
Getting out of low markets will still be tough as liquidity in real estate will be limited to in-demand markets. But the overall economic indicators look solid for the CRE market.
The Regulatory Indicators
As we move forward in time, things become more streamlined and compliant. The year 2019 is said to impose more regulatory compliances as compared to 2018. Here is how it will affect CRE trends.
- The increase in compliance will affect directly on administration costs. Things will become tighter for REITs and Engineering and Construction companies. The following procedure will increase accounting costs which will hurt Commercial Real Estate owners.
- Commercial security market will suffer because of risk retention rules.The issuance of commercial mortgage back securities will go down in the coming year. This will also affect the availability of capital in the secondary market.
Trends for Commercial Real Estate in 2019
The trends that will dominate the Commercial Real Estate market in the year 2019:
- The American hotel occupancy rates are said to break all previous records in 2019.
- The HQ2 campaign will pick up even more steam which will result in more Commercial Real Estate projects this year.
- The warehouses in the United States are going to increase because of the boom in the E-commerce industry.
- The Construction industry will continue to face high building costs and a shortage of labor.
- Millennials will continue moving to suburban cities resulting in a major boom in 18-hour cities.
- Opportunity zones will continue making waves.
On the whole, 2019 looks optimistic for the commercial real estate market. However, any uncertainty on the international stage can change things for better or worse. Therefore, before you get involved in any commercial real estate investment, make sure you do your due diligence and consult a professional.