CRE Report Examines Stability in Risk Environment

Situs RERC, Deloitte and the National Association of REALTORS have released their annual real estate study, which includes a review of last year’s market realities, as well as a forecast of the trends we should expect in 2018.
Ken Riggs, president of Situs RERC
Ken Riggs, president of Situs RERC

Situs RERC, Deloitte and the National Association of REALTORS have released “Expectations & Market Realities in Real Estate 2018 – Stability in a Risk Environment,” an annual report that reviews what’s happening in real estate.

The report reflects on 2017 trends, including looking at the economy, capital markets, residential and commercial real estate and property markets. It also provides the trio’s joint perspective for real estate in 2018.

“Amid the ongoing U.S. political drama that is expected to continue in 2018, the stable income component with modest appreciation from CRE provides an attractive choice in the uncertain future of alternative investments such as stocks and bonds,” Ken Riggs, Situs RERC’s president, said in a prepared release. “Risk-adjusted returns for CRE are favorable to other asset classes over the long term and provide investment diversification.”

The report noted that in 2018, it’s expected that risks in the financial markets and political uncertainty will continue and keep investors on the lookout to provide stability.

Office market projections

The office market was forecast to remain a top investment this year due to its stability, especially for foreign investors. The report notes that suburban office space is expected to outperform CBD assets from a risk-adjusted return perspective, because it’s often easier to adjust suburban space to new consumer and employee preferences.

Nationally, office vacancy is at its lowest level since 2007, the report noted in citing CoStar. Rents in the sector have been rising, driven by job growth in business and professional services and increasing demand for tech-ready and co-working segmented space.

The industrial sector was shown to be active due to an increase in e-commerce and manufacturing, which sparked a surge in warehouses, fulfillment centers and delivery services.

Additionally, single-asset transaction volume was weaker compared to portfolio and entity-level transaction volume, growing by about 9 percent year-over-year compared to 92 percent and 41 percent, respectively, according to RCA.

report table“In 2018, expect generally stable performance and values, across most U.S. markets and major commercial real estate asset types, as we move further into a mature market cycle,” Matt Kimmel, Deloitte Transactions and Business Analytics LLP’s principal, said.

The report also touched on the current tax bill, and projected that the CRE sections of the tax bill left many of the prior provisions mostly unchanged, such as Section 1031 Like-Kind Exchange rules for real property.

The report was based on findings and knowledgeable insights from recognized real estate authorities with experience across all property types worldwide.

Last December, the RERC Situs revealed that its top-three ranked major metros in the apartment sector are Dallas, Atlanta and Seattle. 

Image courtesy of Situs RERC