NAR forecasts economic output to expand at a stronger pace of 3.0 percent in 2018.

With economic output and employment trends continuing on an expansionary path, commercial fundamentals are expected to exhibit solid demand and increasing cash flows. Vacancy rates will likely provide mixed results, with multifamily undergoing growing availability from an expanding supply pipeline. Office and retail properties will likely see vacancies move sideways, while industrial spaces will find rent growth advancing at a steady pace.

On the investment side, rising interest rates will continue to add upward pressure on investment yields. The Federal Reserve has indicated that it is committed to unwinding its balance sheet and, as consumer prices rose by close to 3.0 percent in August, will continue with several rate increases in 2018 and 2019. Most analysts are expecting another two rate hikes this year, and three-to-four next year.

Annual Growth Rate

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Source: National Association of REALTORS®

 

This forecast factors in the increased consumer and investment spending arising from the tax changes under the Tax Cuts and Jobs Act, which includes a reduction in the corporate tax rate from 35 percent to 21 percent.

  • Payroll employment is projected to increase 1.7 percent for the year, which would push the unemployment rate down to 3.9 percent.
  • Inflation is expected to accelerate to 2.9 percent, as the economy continues to reach its full capacity and as oil prices continue to recover.
  • NAR forecasts the prime rate to hit 4.9 percent and the 30-year government bond rate to move up to 3.2 percent for the year. NAR expects monetary policy to continue to tighten in 2019, but at a cautious pace.

For commercial investments, the trends have already shown in pricing. Cap rates seem to have found a floor, and for some property types, have already begun to turn upward. In SCRE markets, price gains will likely continue during the latter half of 2018, mostly due to the inventory shortage. However, the momentum is moderating, and beginning to converge toward that of LCRE markets.

 


About Commercial Real Estate Outlook: 2018.Q3

Highlights:

  • NAR forecasts economic output to expand at a stronger pace of 3.0 percent in 2018.
  • With economic output and employment trends continuing on an expansionary path, commercial fundamentals are expected to exhibit solid demand and increasing cash flows.
  • Vacancy rates will likely provide mixed results, with multifamily undergoing growing availability from an expanding supply pipeline.
  • Office and retail properties will likely see vacancies move sideways, while industrial spaces will find rent growth advancing at a steady pace.
  • For commercial investments, the trends have already shown in pricing. Cap rates seem to have found a floor, and for some property types, have already begun to turn upward.

For full report visit NAR website and preview the .pdf 

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