Economy Watch: Slowing Economy Won’t Impact CRE

The U.S. economy might be off to a slow start this year, but the CRE industry should still fare well in 2016.

The economy’s gotten off to a somewhat slow start this year, but that won’t necessarily put too big of a dent in the U.S. commercial real estate market, according to a recent annual report published by Situs Real Estate Research Corp., Deloitte and the National Association of Realtors. In fact, despite various global and domestic problems hindering economic growth, steady job gains and stable leasing demand should help keep CRE activity expanding in 2016, the report explained.

The report, “Expectations & Market Realities in Real Estate 2016 – Navigating through the Crosscurrents,” predicts commercial real estate activity will grow gradually this year with demand for space holding steady across all commercial sectors. Investors will still benefit from solid income flows generated by new and existing leases, even as commercial property values and price gains flatten after surpassing 2007 peaks in some major markets.

Vacancies are expected to continue to decline slightly this year for all property types, except in the apartment sector, the report noted. Apartments will, by contrast, see vacancies rise modestly by the end of the year as new product enters the market. Demand (spurred by job growth) exceeding supply and limited new construction (except for multifamily) should lead to rising rents. Price growth will, however, level off in many markets.

The wider context of the CRE market is continuing growth in U.S. economy, which faces headwinds from a strong dollar, financial market volatility and geopolitical concerns. Even so, the economy will probably grow 2 percent to 3 percent in 2016, which is stronger than most other developed economies. That pace would be enough to generate around two million-net new jobs over the next year, which is the linchpin of whatever growth CRE will experience this year.