The U.S. property market landscape in 2017 will be characterized by continued strong fundamentals, increased investment flows, and high transaction volume. The broader U.S. economy should continue to grow moderately and add jobs. U.S. employment gains continue to be strong, with unemployment dropping below 5 percent in 2016, adding to demand for commercial real estate in a variety of sectors.
Many are surprised that the economy has not reached the end of the current growth cycle, but the fact that the recovery was so protracted and growth relatively anemic over the past seven years leads us to believe that the economy may have another two years left in the current growth cycle.
The U.S. Federal Reserve made it clear in December that it sees U.S. growth as relatively stable, notching the federal funds rate higher by a quarter point early that month—only the second time since 2006 it has raised rates (the last time was in December 2015). “Economic growth has picked up since the middle of the year,” said Fed chair Janet Yellen. “We expect the economy will continue to perform well.”
Nevertheless, underlying inflation is extremely tame in the United States and major emerging markets (some sectors and countries are worried about deflation), providing no impetus for significantly higher rates. Lending rates and fixed-income rates of return will still be very low by historical standards, inducing continued leveraged purchases of real estate assets.
Regarding the elephant in the room: what are potential impacts of the new administration? Though President Trump has pledged to make massive changes in the U.S. economy, regulatory environment, and government, it remains to be seen—even with a Republican majority in both houses—how much change can really take place.
The following five trends can be expected to play a significant role in commercial real estate in 2017.:
Global Economic and Political Uncertainties
Continued Strong Foreign Capital Flows
Volatile Energy Markets
Slowing New Supply for Commercial Real Estate
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Source: Urban Land Institute