Investing late in the cycle in any asset class is a challenge but investing in real estate has additional risks. Commercial real estate investors face disruption from e-commerce, work force automation, and co-working trends, among many others. Broader macroeconomic, capital market, and policy risks must be understood to successfully invest in property. Looking back over the last century through the prism of other famous and infamous “Niner” years (1919, 1929, 1969, 1989, and 2009 to name a few), this session used history to suggest some major opportunities available to investors while providing insight into potential major threats.
- Douglas Poutasse
- Outlook for 2019: healthy U.S. economic growth coming under pressure, with more dovish Fed stance calming markets. Economic fundamentals are strong, but risks remain due to global slowdown, trade war, and other factors.
- GDP is coming down. Most economists are projecting a recession by the end of 2020. What we are really watching is the labor shortage—a significant labor supply mismatch.
- Mobility in the U.S. is at an all-time low. People don’t move away from unemployment, they move toward employment opportunities. The 18 to35 year-olds are moving much less than previous generations.
- Investment activity is robust even as returns moderate. NCREIF total return came in slightly below consensus expectation and industrial is outperforming dramatically while retail lags.
- U.S. interest rates are high, not low (relative to other countries). It is cheaper to borrow money for a real estate project in Portugal than in the U.S. Economic trends remain supportive of apartment demand, but urban development focus is weighing on recent performance.
- Office properties see downtowns hosting an increased share of supply and tech markets are driving office rent growth. Coworking spaces are emerging as an office-demand growth driver. Not all retail spaces are created equal and smart tenant selection is more important than ever. We overbuilt office space in the 1980s and are still paying for that. The office sector has been the weakest and there is still too much supply.
- 2018 was third-highest year for real estate transaction volume but returns have dropped from recent highs with expectations low. The cap-rate spread has eroded but yield still attracts investors.
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