It’s impossible to predict the future of anything, and history has shown that no matter how many great minds are tasked to do so, predicting the financial markets can be a particular bear (pun intended). Despite the challenge, the start to any year is always a good time to take a look at what the experts have to say about the future of CRE investment, which is what we’ve done for you here.
Real Estate Weekly acknowledges the doubters who think 2016 will bring with it a ‘significant market correction,’ but believes that continued job growth, increased lease activity, and the strength of the multifamily sector will prove the naysayers wrong this year.
From Reis, Commercial Real Estate Data: By any measure, it’s been a good few years for the multifamily industry. As that has happened, builders have started doing what they do best—building. The question is, will the number of apartments being built outstrip demand? Experts are split on the matter.
Mark Obrinsky, senior vice president for research and chief economist for the National Multifamily Housing Council, says the industry needs to build 300,000 to 400,000 new apartments a year to keep up with demand as it stands now. He forecasts that the industry will be within that mark in 2016, and downplays concerns of oversupply. Ryan Severino, senior economist and director of research at commercial real estate research firm Reis, feels differently. “We’re definitely developing too many Class A properties and not enough Class B, C properties,” he says, “They’re developing in an environment where we’ve already seen vacancy going up.”
With many commercial brokerage firms having their best year on record in 2015, and with national GDP forecasted to grow in 2016, many investors are bullish on the commercial real estate market in the coming year. Mark Taylor, Senior Vice President Investments, Senior Director, National Retail Group cites a study from the Urban Land Institute (ULI), claiming 70% of real estate professionals believe 2016 will be a good year for commercial real estate.
Collier’s Global Investment Outlook for 2016 reveals that over half of investors will be increasing their real estate allocations this year, and that investor sentiment towards commercial real estate will remain positive. The US, according to Collier’s, will be the preferred destination of global capital, while global ‘gateway cities,’ like London, Paris, and Tokyo will be the preferred place for cross-border investors to allocate capital.
While 2015 saw record foreign investment in the American real estate market, a change of law, included in the United States’ federal budget passed this December loosens a number of restrictions that were holding back potentially billions of dollars in foreign capital. “Foreigners can now hold a 10 percent stake in a real estate investment trust (REIT), without triggering a federal law that would require paying income taxes when they sell U.S. real estate. Previously, a foreign investor could hold a 5 percent share in a REIT without getting taxed.”
With so much positive press about the future of CRE investment in 2016, it’s important to take a moment to listen to the dissenting opinion. Some experts, like Anika Khan, senior economist at Wells Fargo Securities, believe the massive increase of foreign investment in the US commercial real estate sector may lead to, “elevating valuations and crowding them [US investors] out,” and that, “Some investors even suggest a bubble is brewing in major markets” preferred by foreign investors.
GlobeSt.com reports that, “Value-Add Investors Flock to Hollywood,” after investors like Waterton (who purchased a 345 unit, multi-family building in Hollywood for $88.5 million from Carmel Partners), and employers like Netflix, and Viacom (who have relocated their headquarters to the area) have been investing heavily in the Hollywood market. Mark Stern, the SVP of acquisitions at Waterton, told GlobeSt.com. “We see a tremendous amount of jobs coming to the area. I think the addition of jobs and its location in the Los Angeles area, as well as its proximity to retail, restaurants and public transportation makes it a great area to own a rental property.”
Most seem to agree that while 2015 was an incredible year for commercial real estate, 2016 could be even better, with tremendous investments being made around the country, and a supply of foreign money coming in that doesn’t seem to be ending anytime soon. All that said, there are still voices preaching caution, when it comes to investing caution should never truly be thrown to the wind, but all-in-all things are looking good for our industry in 2016.