With the commercial real estate market entering the late stages of its current growth cycle, industry experts fear that another recession looms in the not-too-distant-future.
Lawrence Yun recently told NAR’s Commercial Connections magazine that as long as steady job creation continues to drive economy stability “there should be more deals in the making for commercial practitioners.” Still, a subtle sense of panic is in the air.
With new commercial real estate investment and construction supporting around 3.2 million American jobs and contributing $450 billion to the U.S. GDP in 2015, according to a recent NAIOP report, concern about a possible recession and its impact on a vulnerable economic environment–particularly over the next year–is understandable .
With that nervousness in mind, Dr. Yun and four other highly-respected economists told Commercial Connections what the industry would look like for the next twelve months and how it would impact the economy:
- Lawrence Yun, NAR Chief Economist says that “new financial regulations have greatly raised the cost of doing business for the smaller guys, due to more onerous lending regulations on community banks.” Yun also cites “worrisome property prices” possibly creating vulnerability when interest rates go up in 2017.
- Jim Costello, CRE, Senior Vice President of Real Capital Analytics, believes that “deals will continue to happen and pricing will continue to remain tight” but with “greater differences on buyer and seller pricing expectations moving forward, the market is likely to be hung for a while.”
- Sara Rutledge, Director of Research, National Council of Real Estate Investment Fiduciaries says that “performance may have peaked” but “commercial real estate remains an attractive relative performer across asset classes, outperforming equities” meaning the outlook is “good, not great.”
- Mark Dotzour, former Chief Economist and Director of Research for the Real Estate Center at Texas A&M and freelance economist cautions that the “US economy is getting aged,” with “maybe two more years of sluggish expansion that will continue to generate tenants” and make commercial real estate “very attractive to global investors.”
- Kenneth P. Riggs, Jr., CCIM, CRE, Chairman & President of the Real Estate Research Corporation reminds investors that “[commercial] real estate’s role as a foundation during uncertain times almost ensures that it will continue to be an attractive investment for the next 12 months.”
As a whole these economists believe that a potential global economic slowdown could spur foreign investors to look to the U.S., further driving modest but positive growth and bolstering commercial real estate through a late-cycle that will continue to reward investment.
Source: “Economists’ Perspectives on the Industry,” Commercial Connections (Aug. 9, 2016)