1. Opportunity Zones Craze To Persist
As investors await finalized guidance from
the Department of the Treasury and the IRS regarding the Opportunity Zone
program, the hunt is on for assets and investment opportunities in these
designated areas that present the strongest upside potential. Investors are lining up to pour billions into
Opportunity Zone Funds, with a report from Real Capital Analytics stating there
is more than $6 trillion in unrealized capital gains eligible to be deployed
into opportunity zones.
While the program was created through the
passing of the Tax Cuts and Jobs Act last year to drive economic development in
underserved communities in exchange for a hefty tax break, research reveals
many of the census tracts classified as opportunity zones have already
attracted a substantial amount of investment prior to the launch of the new
federal program. Critics of the program worry it will accelerate investment in
areas already experiencing a surge in development activity, leading to a
convergence of investment into burgeoning neighborhoods already in
high demand, and a lack of investment in otherwise blighted communities.
2. Industrial Boom To Continue Thanks To High Demand From
E-Commerce Players, Though A Few Headwinds May Surface
Industrial real estate demand soared to new heights this year,
and CBRE Head of Industrial Research David Egan expects more of the same in
2019.
“I think the market has outperformed this year, at least from
user activity. There has been a general expectation for a number of years
that this can’t continue, and it turns out that hasn’t been true. We have a
massive amount of demand on the market for logistics properties of all types;
obviously the Class-A big-bulk warehouses are what get most of the attention,
but the demand is very broad-based and extending all the way down to secondary
and tertiary markets,” he said. “My expectation in 2019 is that we should see
more or less of the same dynamic.”
Net absorption is expected to average between 75M SF and 94M SF,
same as this year, according to CBRE's 2019 Outlook report, and a
lack of new supply has driven vacancy levels down to 4.3%, a historic
low.
“Based on the demand that we're seeing from the e-commerce
sector — as well as from traditional brick-and-mortar retailers that are
entering or expanding in the online space — we can fully expect that e-commerce
will continue to drive the market next year,” Bridge Development Partners
President Anthony Pricco said. “This is especially true for infill sites
proximate to the major population centers. While the rising costs of land and
construction could be viewed as emerging market headwinds, the upside of
industrial development is still exceptionally strong, as rents have been
appreciating at an even faster pace.”
Egan told Bisnow he would not
be surprised if net absorption tapered off in 2019 due to new supply not
keeping pace with robust demand levels.
“You can only absorb what’s available,” said. "While we
expect to see supply-demand relatively in check, those growth metrics will
still be positive.”
3. Federal Reserve To Gradually Boost Interest Rates Due To
The Strength Of The Economy
With robust jobs growth continuing to
increase at a healthy clip and the unemployment rate steady at
3.7%, a 50-year low, Fed officials hint that
they will likely continue their course of action in 2019 to gradually boost
short-term interest rates to temper inflation and maintain a stable economy.
“Inflation exists above the Fed’s target of 2% to 2.5%, with
more job openings than unemployed and more homebuyers than new housing
inventory. The Fed sees inflation ahead first and foremost and will continue on
a hike-pause-hike-pause pattern in 2019 as long as GDP remains above 2.0% and
unemployment below 5%,” CCIM Institute Chief Economist K.C. Conway said.
The Fed boosted rates three times this year to
a range of 2% and 2.25%, and many expect central bankers to bump rates again in
December. Big Wall Street banks polled by
Reuters expect central bankers to boost rates another three
times in 2019.
“Although the most recent Fed guidance has seemed less
definitive on its future course, the market and most analysts anticipate
another hike this month and two to four next year, as both inflation and wage
growth exceed their targets,” Colliers International U.S. Chief Economist
Andrew Nelson said. “This will ultimately translate into declines in consumer
and business borrowing and curb spending and investing.”
https://www.bisnow.com/national/news/commercial-real-estate/commercial-real-estate-trends-to-dominate-in-2019-95890
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