NAR: 2016 commercial real estate market to continue expanding as prices moderate

Dive Brief:

  • Despite international and domestic obstacles to economic growth, a report by Situs RERC, Deloitte and the National Association of Realtors predicted commercial real estate activity will continue its expansion due to the addition of jobs and steady leasing demand.
  • The Expectations & Market Realities in Real Estate 2016 — Navigating through the Crosscurrents report said investors will still see gains from new and current leases even though property values and pricing  which have exceeded 2007 highs in some markets  will most likely flatten, according to the NAR.
  • The report also said that as more apartment developments become available, vacancies in that sector should rise slightly, but all other property types should continue a slight decline in vacancies through 2016.

Dive Insight:

Job gains, higher demand than supply, and restrained new construction should lead to increasing rents and stable returns for commercial investors, even though pricing growth will flatten in many markets, according to the NAR.

"Historically low interest rates, especially in treasuries, combined with commercial real estate's stable prices and value make this asset an attractive investment," Situs RERC President Ken Riggs said in a release. "Looking into 2016, the commercial real estate market should moderate, which could stabilize prices."

The U.S. economy is expected to grow at a rate of 2%-3% this year, which translates to approximately two million net new jobs in 2016. Deflationary pressures associated with low gasoline and energy prices should lessen by the middle of the year, in part because of robust growth in apartment rents. 

"Supported by solid hiring in most parts of the country, the demand for ownership and rental housing will continue to increase in 2016 despite another year of meager economic expansion," NAR Chief Economist Lawrence Yun said in a release. "While supply shortages will weigh on housing affordability and push home prices and rents higher, the housing sector will keep the U.S. economy afloat and lead the residential investment component of GDP growth by up to 10% this year." 

Also highlighting residential growth in the coming year, the CMD Group, in its first-quarter forecast report, predicted the demand for single-family homes will exceed demand for multifamily homes and most likely drive residential starts over the next several years.

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Filed Under: Commercial Building Residential Building Economy