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Commercial real estate is a property that is used for non-residential or business purposes. These are leased out for workspaces rather the living spaces. This includes Gas stations to office spaces, hotels, shopping malls, restaurants, and supermarkets. While most businesses commercial spaces built on their own, others find it better to lease out workspace. Commercial Real estate is also an indicator of potential economic activity and thereby analyzed extensively by Economists.

Real Estate

A stronger current year:

The U.S. property market landscape in 2017 has been characterized by continued strong fundamentals, increased investor flows and high transaction volume. As for the economic landscape, the U.S. continues to grow moderately and add jobs. The U.S. employment gains continue to be strong, with unemployment dropping below 5.0 percent earlier this year, and adding to the demand for housing in a variety of forms, for office space, for the retail sector and industrial/distribution facilities. While many fear the end of the current economic cycle, the fact that the recovery was so protracted leads to believe that we may have another two years left in the current growth cycle.

Global Uncertainties:

The Brexit vote in the U.K. has added new uncertainties that will not be fully comprehended, much less resolved, anytime soon. For U.S. markets—real estate in particular—the impact is likely to be largely positive as U.S. assets become more attractive and valuable to global investors. We can probably expect enhanced inbound foreign investment in U.S. real estate as the U.S. becomes even more of a safe haven in the economies around the world are facing uncertainties. The IMF predicts higher economic growth in the world as emerging markets find their footing and commodities continue to recover from the dip during the last five years. Stronger global growth is likely to provide more real estate inflows into the U.S. market as the U.S. remains one of the most attractive commercial real estate markets.

Lowering interest rate:

Coming out of the global financial crisis, real estate has benefited from the economic recovery cycle and declining interest rates in most parts of the developed world, supporting attractive returns driven in large part by cap rate compression. As a result, current valuation levels in most sectors are elevated, and future returns should be expected to moderate. The investing environment is likely to shift from a “lower growth, lower rates, for longer” setting to a “higher growth, higher rates” backdrop, at least in the near term. While higher rates have the potential to lead to cap rate expansion, the current expectation is that stronger economic growth may translate into stronger rent

Drop in cost of Logistics:

The drop in oil prices have in turn affected the cost of logistics for companies. For most metro areas and property types, lower oil prices have been a net positive. Spending less on gasoline encourages consumers to spend more on other items, which helps retail and hotel market fundamentals. Lower oil and energy costs will also reduce certain construction, manufacturing and logistics costs. This aids business investment and expansion, which, in turn, increases demand for industrial and manufacturing space. Property markets will see a short-term lift due to a combination of improving tenant fundamentals and lower operating costs.

 

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