Three themes anchor the U.S. commercial real estate investment outlook: U.S. economic performance, cycle maturity and the monetary policy outlook, said Cushman & Wakefield, New York.
“By and large these elements combined with the broader economic outlook point to continued strength and liquidity in the commercial real estate investment realm,” Cushman & Wakefield Chief Economist Kevin Thorpe said in the firm’s U.S. Macro Forecast. “With the threat of rapidly rising interest rates unlikely, most immediate valuation concerns have abated. However, a mature cycle still means that late-stage strategies are becoming more common and that the performance of the commercial real estate investment market will only become more nuanced.”
The report called sales activity “very robust” last year, the third-strongest year on record largely due to significant merger and acquisition activity. “Generally investment volumes saw sustainable growth across single-asset, mega-deal and portfolio sales–trends that are expected to continue–whereas we expect entity transactions to revert to more typical levels as a base case,” Thorpe said.
Retail and hospitality volumes increased more than other CRE sectors last year, reversing several years of declines for both. Cushman credited the retail sector’s increase entirely to merger and acquisition, but called the recovery in hospitality volumes more broad-based.
“The most favored asset classes at this point in the cycle continue to be multifamily and industrial, strength that seems set to continue,” the report said. “Suburban office sales appear to be stabilizing near record highs while central business district office sales recovered on margin following a sharp slowdown in 2016 and 2017.”
As the cycle continues to mature and fewer asset types and geographies see appreciation, aggregate pricing will likely decelerate, Cushman said. The Real Capital Analytics pricing index rose 6.5 percent in 2018, but the report predicted that index will increase 5.0 percent this year and only 3.8 percent in 2020.
“Although downside risks persist, the most probable scenario is that the U.S. expansion will continue, the momentum will continue and 2019 will be another healthy year for the property markets,” Thorpe said.