Expectations & Market Realities in Real Estate: 2019

Investors are traveling into uncharted territory as the US econ­omy’s expansion approaches its 10-year anniversary in July 2019, which would break the record for the longest economic expansion since the government started collecting records in the 1850s. Investors are worried because they know nothing good lasts forever, and they see potential disruption in the economy – perhaps caused by political turmoil around the world, the potential for continued raising of interest rates, or uncertainty caused by global trade discussions. In 2018, the stock market rode a roller coaster and ended down for the year. So we enter 2019 asking the question: What will the year bring for the US and global economies and the commercial real estate (CRE) market?

We expect continued volatility in the financial markets, along with a slow but steady rise in interest rates and Treasury rates. Debt and equity capital should continue to be readily available. We expect that equity capital will be more disciplined.

The good news for CRE investors is that solid property fundamen­tals are underlying strong valuations and these valuations are supporting high prices. All the property types seem to be holding their own — including retail — which has struggled in recent years due to overbuilding and the rise in e-commerce. Surviving retailers are learning how to adapt to new technology and changes in consumer shopping tastes. As more consumers make online purchases, the need for distribution centers increases and demand for industrial space keeps growing. The apartment sector exhibits renewed strength, thanks — in part — to a continuing problem with affordability for single-family housing. In the hotel sector, room supply, room demand, occupancy, average daily rate (ADR) and revenue per available room (RevPAR) are at all-time highs. The office sector has been spurred by increased investment in non-ma­jor and suburban markets.