The commercial real estate industry has far-reaching effects across nearly all other industries. As we’ve learned from our decades of experience in commercial real estate, each new year brings a unique set of challenges that we must contend with as well as thrilling developments that we welcome and enjoy. While not all predictions come true, industry experts analyze the past year of activity to declare potential upcoming trends we should all be aware of. Let’s review the top six commercial real estate trends for 2019.
1. Growth of the Industrial Sector
2018 saw an impressive growth in industrial real estate, and experts expect it to continue in the new year. Nearly all of this development is a result of eCommerce growth, which has been driving eCommerce shops into brick and mortar stores. This is especially true for major population centers, where demand for commercial centers continues to grow despite rising land and construction costs. Specifically, experts noted that net absorption resulting from eCommerce growth should average between 75M SF and 94M SF, and vacancy levels are down to a historic low of 4.3%.
2. Federal Reserve to Gradually Boost Interest Rates
As long as the GDP remains above 2% and unemployment below 5%, the Federal Reserve will most likely gradually boost short-term interest rates to “temper inflation and maintain a stable economy.” As 2018 winds down, the economy is currently seeing a boom in employment, with a 50-year low unemployment rate of 3.7%.
3. Affordability Concerns Continue to Grow
Despite the demand for space for brick-and-mortar eCommerce retailers, it will be difficult to build affordable housing—especially in urban areas. While talent continues to pour into these metro regions, many new residents are finding it difficult to find housing that meets their needs—close to work and mass transit while still being in the center of the action. Investment in value-add multifamily assets should ease this issue.
4. Investors Will Favor Specific Assets
Commercial real estate assets, especially those in industrial real estate, continue to be a favorite among investors. As 2019 approaches, major investors like Blackstone Group have begun purchasing entire portfolios of industrial assets. Notably, retail is expected to also garner interest from investors, especially assets like shopping malls that can either be upgraded or redeveloped.
5. Office Markets and Retailer Earnings Stabilize
Office net absorption is expected to reach 37M SF in 2019, which is the sector’s 10th year of positive growth. However, some experts fear that a decrease in job creation will mean a slowdown in office demand; as a result, rent growth will stabilize.
Similarly, retailer earnings should level out. While the consensus is that 2017 was the peak year for retail closures, 2019 closures will be more in the realm of portfolio rationalization or optimization than about failing retailers.
6. Construction Industry Will Continue to Struggle
The construction industry has been struggling for much of 2018, and industry experts don’t foresee much of a change in 2019. Rising construction costs were noted as the primary concern for the real estate and development industry in a recent survey. Specifically, this survey found that construction costs ranked 4.59 out of 5, with land costs, housing costs, and availability following close behind with rankings of 4.14, 4.14, and 4, respectively. Thanks to rising tariffs and a decrease in construction laborers, construction costs are definitely under pressure.
2018 was a year of growth, change, and some surprises for the commercial real estate industry. As we move into 2019, we at Murphy Commercial are looking forward to a new year of innovation and excitement in our industry.
Contact us today for more information about commercial real estate trend predictions in 2019.