“We have been spoiled for so long by low interest rates in commercial real estate. Currently, we have to reset expectations for target returns, but there's still lots of capital out there, both domestic and abroad, that appreciates the value and stability of U.S. commercial real estate. It remains to be seen, but concerns over volatility in the public REIT market may turn out to be more perception than reality.”
- Elizabeth Braman, CCIM, Senior Managing Director at Realty Mogul
Skilled Labor Needed to Boost Manufacturing
The No. 1 priority for companies seeking to locate manufacturing operations is access to skilled labor. “The biggest trend is having the workforce to meet the needs of the company in the short-term, mid-term, and long-term over the next 25 years,” says Del Boyette, president and CEO of Boyette Strategic Advisors. “You can have all the infrastructure in place, the perfect building, and the perfect site. But if you don't have the workforce to support that business unit long-term, then the investment cannot be made at that site.”
Corporate real estate professionals play a key supporting role in the site selection process, which usually involves a large team of real estate, human resources, legal, government, IT, and tax professionals. Corporate real estate professionals usually manage the process and input from different stakeholders.
ULI Forecasts Moderate Growth for CRE Industry
Annual CRE transaction sales volume peaked in 2015 at $547 billion, declined to $489 billion in 2016, and is expected to decline to $450 billion in 2017 and 2018. However, that volume remains well above the long-term average.
Commercial real estate prices are projected to grow at relatively subdued and slowing rates: 5 percent for 2017; 3.5 percent for 2018; and 3 percent for 2019.
Vacancy rates for industrial, office, and retail are expected to improve in 2017, but stay flat for 2018 and 2019. Multifamily, however, is expected to rise to a 5.2 percent vacancy in 2017.
Hospitality — Despite the forecasts to the contrary, demand
for hotel rooms grew by 2.8 percent YOY in Q1 2017 compared to Q1 2016,
according to CBRE. Accelerating growth nationwide pushed up occupancy to 61.1
percent in Q1 2017, the highest level since STR began tracking this data in
1987. Some 53 of 60 markets had positive growth for hotel rooms. The top three
growth markets were the geographically widespread Albany, N.Y., New Orleans,
and Salt Lake City. Demand was highest among upscale hotels, with 5.8 percent
Industrial — Absorption of 53.8 million sf in Q1 2017 lifted
the industrial market to the highest rate in this economic cycle and much
higher than 40.6 msf during the last two economic cycles, according to Cushman
& Wakefield. The vacancy rate for industrial continued its fall by 20 basis
points from Q4 2016 to 5.3 percent. “Online sales continue to drive
significant requirements for new industrial space across the country,” says
John Morris, executive managing director of logistics and industrial services
for the Americas at C&W.
Multifamily — While rents ticked up in May 2017, the rate of
growth in multifamily continued its slide, according to the Yardi Matrix. The
average U.S. monthly rent was up $4 to $1,316, based on data from 121 markets.
An oversupply of apartments nationwide is lowering demand. The difference in
growth between lifestyle renters and renters-by-necessity continued.
Nationally, lifestyle rents are flat YOY, while RBN rents have increased by 2.6
percent. Yardi Matrix expects multifamily to peak in 2017, although it will remain relatively
robust in 2018 and 2019.
Office — While absorption in office is cooling off, the
record streak of positive occupancy continues across the nation, according to
Cushman & Wakefield. “The economy continues to add jobs, and most U.S. markets
remain fundamentally healthy,” says Kevin Thorpe, global
chief economist at C&W. “But the combined pressures of slower
job creation and rising office construction is beginning to place upward
pressures on vacancy rates, particularly for larger U.S. cities.”
Retail — Value brands continue to outpace big-box stores,
driven primarily by a fundamental shift among consumers toward lower prices,
according to CBRE. Brands like TJ Maxx, Ross, and Stein Mart are relatively
insulated from e-commerce growth compared to mid-range brands because consumers
enjoy the bargain-hunting factor in retail shopping. Overall, many experts are
seeing effective adaptation from many retailers to meet shifts in consumer