Sustained momentum from the U.S. economy’s extended economic expansion bodes well for major commercial real estate asset classes in 2019, promising additional allocation from institutional and international investors, a hunt for opportunities in secondary markets, and robust construction completions in sectors such as office and multifamily, according to a new report from CBRE, 2019 U.S. Real Estate Market Outlook.CBRE’s outlook report anticipates that absent economic shocks such as sharply rising inflation and import costs, the U.S. economy will generate solid growth amounting to a 2.7 percent gain in gross domestic product and benefiting all sectors. That, in turn, will contribute to stable capitalization rates for the market as a whole, a 10th consecutive year of positive net absorption in the office market, and support for redevelopment and re-tenanting in the retail market.
“Continued economic growth bodes well for all sectors, sustaining job growth for the office market, consumer confidence for retail and industrial, and entity-level, mergers-and-acquisition activity for the capital markets sector,” said Richard Barkham, global chief economist and global head of research, CBRE. “We foresee compelling opportunities in secondary markets, given that we haven’t experienced cap-rate convergence in those markets or even in many of the crowded primary markets.”
CBRE’s 2019 Outlook dives deeper into six topics for the coming year. In regards to the U.S. economy, CBRE sees “confidence and momentum driving consumer spending and business investment in 2019. Growth might be less than in 2018, given the potential drags of inflation and the slowing single-family housing market, but we predict healthy GDP growth of 2.7 percent,” said Barkham.
As for capital markets, robust investment volume in 2019, including entity-level deals, should match the strong transaction levels of 2018. M&A momentum should carry into 2019, especially since individual assets are in limited supply and generally priced at a premium. Borrowing costs may ease up, due to slowly rising bonds rates, but the amount of equity available for investment in real estate should support transaction volume and keep cap rates low in some cases. Specifically, various secondary markets may register cap-rate decreases in 2019.
Source: CBRE and Institutional Real Estate
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