NAR, JLL Keen on 2018

Sharing their thoughts at the 2017 Realtors Conference & Expo, economists from the National Association of Realtors and JLL expressed confidence in the 2018 commercial real estate market.

Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors
Lawrence Yun, chief economist & senior vice president of research at the National Association of Realtors

And the good times just keep on rolling. At the 2017 REALTORS Conference & Expo in Chicago this week, economists from the National Association of Realtors and commercial real estate services firm JLL shared their expectations for commercial real estate in 2018, and the forecast, like the predictions for 2017, is for yet another solid year—with a variation or two.

Lawrence Yun, chief economist with the National Association of Realtors, and Ryan Severino, chief economist with JLL, agree that the commercial real estate sector is likely to continue on the upswing, bolstered significantly by seven years of strong job creation. And the economy’s performance, also none too shabby, plays a role as well.  “The economy is quite impressive and gross domestic product has grown 3 percent in the last quarter, despite hurricanes and other economic factors,” Yun said in a prepared statement. “The consumer confidence index is also growing, and the nation’s net worth and consumer spending are at historic levels.”

The national vacancy rate will remain steady in the office sector, as it will in the industrial and retail sectors; although, industrial warehouses in particular will record a greater drop in vacancies as a result of robust demand spurred by e-commerce and trade. Another trend that will be seen in all three sectors is continued rising rents. The growth, however, will be slow across the board. Office, industrial and retail rents will rise at an estimated annual rate of 2.5, 4 and 2 percent, respectively. Much of the same is anticipated for the multifamily sector, where low vacancies will hold firm and rents will increase 3 percent per year.

Something new in the New Year

Yun and Severino also agree that a change in commercial real estate pricing is in the air, and it’s not just the forecasted plateau in price tags. “The commercial market should expect a standoff between buyers and sellers over price in the next year, which could lead to fewer transactions,” Yun said. The reason for the dwindling of common ground on prices can be attributed to buyers’ inability to offer low cap rates due to rising interest rates, and sellers’ unwillingness to lower their expectation of high prices, which they believe is warranted given the positive economic environment.

Severino reiterated that all sectors are on track to experience a strong performance in 2018, but noted that supply is beginning to nip at the heels of demand. “It is important to note that commercial practitioners may be getting too comfortable with the large demand for construction and the great performance of the industrial sector,” Severino said in prepared remarks. Now, there’s a polite warning.

Image courtesy of National Association of Realtors