Even though there are still a few weeks left in 2017, it’s the perfect time to start looking ahead to see what 2018 holds for the commercial real estate (CRE) industry. In fact, the National Association of Realtors (NAR) forecasts a sunny outlook for commercial real estate in 2018.
Let’s take a deep dive into what the major associations are predicting and how it will affect the CRE industry.
2018 by the Numbers
According to this report, the NAR forecasts the following vacancy and rent changes for 2018:
In addition, economists state there will likely be a modest price correction for properties in big cities and trophy properties; there will also only be a 3 to 7 percent drop in 2018, which comes after a 90 percent increase over the past seven years.
However, a disconnect between buyers and sellers/landlords may lead to a 5 to 10 percent decline in unit sales for CRE pros. This is because sellers and landlords will raise their prices since they see the economy is doing well; but on the flip side, buyers will only see rising interest rates and will be reluctant to adjust their offers to meet seller demands, leading to more standoffs. It will be interesting to see which side budges first.
In terms of transaction volume, the Urban Land Institute (ULI) predicts:
- 2017-2018 will see $450 billion
- 2019 will see $430 billion
Both of these numbers are well above the historical average. Further, the ULI found a “healthy” 2.3 percent growth in GDP in 2017 and predicts a 2.6 percent growth for 2018, followed by a 2 percent shrink in 2019.
CRE price growth will take the following forms:
- 5 percent in 2017
- 3.5 percent in 2018
- 3 percent in 2019
These numbers are, again, above the historical average.
In terms of popular trends, according to the NAR, one major rumor floating around the CRE industry is that there is a boom happening in big cities. But, they say, that trend is actually occurring in the suburbs–so don’t count them out!
Predicted Cultural Changes
Deloitte’s report on the 2018 CRE outlook focused on the need to create value in CRE amid uncertainty and change in the industry. Specifically, the report stated that, “The real estate industry seems to be on an accelerating disruption curve highlighted by rapid changes in tenant dynamics, customer demographic shifts, and ever-increasing needs for better and faster data access to allow improved service and amenities.”
One emerging trend is the integration of technology to better collect and utilize data. Certain available technology can help CRE pros gather data in a much quicker time span in order to shorten the buying or renting process. This way, realtors can focus more on transactions and customers rather than time-consuming data gathering.
In addition, as the CRE industry continues to grow and change, it’s important to be mindful of the kind of talent you recruit and retain; in 2018, there will be an emphasis on recruiting a younger generation of CRE pros, specifically millennials, to balance out the experienced ranks.
Lastly, we all know that this industry is no longer a 9-5 desk job, so it’s important to create an environment of constant learning and change that is both open and positive so different generations can learn from each other. Talent retention is as much about investing in your staff as you invest in your CRE properties. That way, your organization will thrive.
In the end, in CRE, it’s all about taking advantage of available technology; being able to work around and through challenges the industry presents; and utilizing staff to their fullest potential.
At Murphy Commercial Real Estate, we’re looking forward to the new opportunities that 2018 will bring. Stay in touch to receive future updates from us!