Severino Predicts Positive CRE Investment Performance in 2017

JLL's chief economist shares his expectations for CRE fundamentals and investment in 2017.
Ryan Severino, Chief Economist at JLL
Ryan Severino, Chief Economist at JLL

With a new administration in place in the U.S., Europe dealing with Brexit and coming elections in France and Germany, the national and international political context is defined by change. How will this influence capital markets and CRE investment? Ryan Severino, chief economist at JLL, shared with CPE his views on how things will stand in 2017 with regard to market fundamentals, the impact of potential new policies and other market dynamics.

CPE: What should we expect to see in 2017 regarding the capital markets?

Severino: The outlook for the economy has become slightly more optimistic. This could serve as a catalyst for capital markets in 2017. However, with the prospect of further interest rate increases on the horizon, equity and equity-like investments are likely to outperform fixed-income and fixed-income-like investments.

CPE: How do you think the effects of the national and international political shifts will play out this year?

Severino: We begin 2017 with tremendous uncertainty. Early on, this could be a paralyzing force. However, as the year goes on and we receive more clarity (from the incoming administration, how the U.K. executes Brexit, etc.) this uncertainty will abate and organizations and individuals will be able to make better-informed decisions.

CPE: Some experts weighing in on the effects of the presidential election think the office sector could be most affected by the new administration. Do you agree? 

Severino: It really depends on policy, but if the administration makes changes to trade and immigration policy, industrial could be the most impacted sector. Increased tariffs could lead to a trade war that would have serious consequences for industrial.

CPE: Do you think that policy changes in the U.S. in 2017 will bring increased inflation and higher interest rates? 

Severino: Yes, it appears as if we are going to get somewhat higher inflation (a stronger dollar impacts trading, oil prices are increasing, and the potential for late-cycle fiscal stimulus). I don’t think it will be rampant, but with wage growth accelerating, we are likely in for multiple rate increases in 2017.

CPE: What do you expect from 2017 when it comes to CRE fundamentals?

Severino: Generally speaking, the outlook for fundamentals in 2017 is cautiously optimistic. All else equal, faster economic growth means stronger improvement in fundamentals. All major property types should benefit, in the absence of other policy changes that would offset the benefits of faster growth.

CPE: Will we see more tempered CRE investment this year? 

Severino: To start the year, we could see investors being more cautious due to uncertainty. However, as uncertainty abates (particularly if economic growth accelerates), CRE investments should do well as a (at least partial) hedge against inflation.

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