What is old is new again as the world shifts its focus once more toward urban centers, according to the McKinsey Global Institute. Three demographic groups are set to generate 50 percent of all global urban consumption growth through 2030. Foremost is the retiring and elderly in developed economies, who are expected to fuel 51 percent of urban growth. While healthcare costs are a big part of their spending, they will contribute more than 40 percent growth to housing, transport, and entertainment.
Second is China's working-age population, which is expected to account for 12 cents of every U.S. dollar spent in cities globally. Third is North America's working-age population, which will grow by 7 percent and will consume 24 percent per capita from 2015 to 2030.
“Despite the tremendous flow of capital and information globally, local market knowledge is still the key differentiator for successful global commercial real estate investors.”
-Brian McAuliffe, president of institutional properties, CBRE Capital Markets
U.S. Commercial Real Estate Markets Stay Strong
The fundamentals in the U.S. economy and generally across the commercial real estate industry continue to maintain its vigor, according to JLL’s U.S. Economic Report. Job growth has continued to drive healthy leasing activity fueling positive net absorption and increasing
occupancies through 2015. Office vacancy rates are near an eight-year low, and industrial vacancy is at its lowest rate in 15 years.
Hospitality — Less demand for hotels resulted in 1Q 2016 growth of just 1 percent year-over-year, causing the first drop in national occupancy since 2009, despite a 1.5 percent boost in supply, reports CBRE. Hotel investment fared worse with an acquisition total of $6 billion reflecting
a 61 percent YOY decline and with single-asset purchases dropping by 42.1 percent YOY.
Industrial — U.S. industrial markets absorbed 70.1 msf of space in 2Q 2016, up 6 percent YOY, according to Cushman & Wakefield. Surprisingly, 38 U.S. markets experienced 1 msf of absorption, reflecting the industrial vacancy rates at the lowest level of the past 30 years and 270 bps
below the 10-year historical average. “We expect to see some headwinds form in manufacturing and exporting created by the stronger U.S. dollar, but other important industrial-related indicators, such as containerized traffic flows, transportation indices, and business inventories, demonstrate that the
industrial market remains on a robust path,” says Kevin Thorpe, chief economist at C&W.
Multifamily — Rents in the U.S. are projected to rise as high as 5 percent in 2016 compared to the 6.3 percent hike in 2015, according to the Yardi Matrix report. One of the reasons for climbing rents is increased emphasis on building high-end rentals, which accounted for 75 percent of large
rental developments in 2015, according to RENTcafé. Since 2012, the ratio of high-end multifamily units compared to total multifamily apartments rose 63 percent.
Office — As strong job growth continues in 2016 — 255,000 new jobs reported for July 2016 — the pace of office vacancies is expected to decline. According to Colliers International, the pace may not reach the record totals achieved in 2014 and 2015 due to vacancy constraints. The largest YOY
gains occurred in the tech hubs of the San Francisco Bay area and New York City, which were closely followed by Atlanta and Dallas.
Retail — The lines are blurring between e-commerce and bricks-and-mortar retail, creating new challenges for retail property owners and potentially creating new revenue streams, according to Marcus & Millichap. So far in 2016, retailers without an omnichannel strategy of
combining physical stores with digital sales have lost market share to competitors. Additionally, big-box retailers that cannot differentiate their services face the most serious competition from online retail.