Report: Slow and Steady Could Win CRE Race in 2018

Finally, after years of fluctuation that only sometimes favored the commercial real estate market, experts have predicted that slow and steady progress will rule the day—at least for 2018. Accounting firm giant PricewaterhouseCooper (PwC) and the Urban Land Institute (ULI) have put out their annual report: Emerging Trends in Real Estate^®2018. The report predicts slower but more sustainable growth for the U.S. real estate market, based on 2 percent annual gross domestic product (GDP) growth and 1 percent job growth. The report was released by PwC and ULI at the 2017 ULI Fall Meeting in Los Angeles; it includes interviews with and survey responses from more than 1,600 leading real estate experts, including investors, fund managers, developers, property companies, lenders, brokers, advisers, and consultants.

A PwC executive said at the meeting that for the first time in five years, people feel comfortable with the cycle; about 80 percent of survey respondents expect good to excellent profitability. Expansion over the next few years was touted as a long-term solution to keeping the market performing well.

Growth is likely to be in smaller and secondary markets, the report asserts, with the growing interest in smaller cities by real estate investors being influenced by their relative affordability, coupled with a concentration of young, skilled workers. Also, the diverse, robust economies of these smaller cities make them very desirable to investors, say CRE experts.

The report names Seattle as the nation’s top market, thanks to its job opportunities, diverse economy, and educated workforce. The city, ranked fourth last year, ends the reign of Texas cities taking first place for the past three years. Austin, which came in first place last year, fell to number two, while Dallas/Fort Worth, which was the top city for 2016, is now in fifth place.

Houston, the nation’s top market in the 2015 report, plunged to 60th place due to disruption in the energy industry. Manhattan experienced the largest year-over-year downward slide to number 46, due to its high cost of assets and oversaturation of construction.

Previously middle of the pack, Salt Lake City and Fort Lauderdale jumped into the top 10 for the first time in the study’s history, as investors look to replicate the success of Denver and Miami with their competitive living costs and high quality of life. Salt Lake City is the smallest market ever to make the top 10.

Secondary markets have dominated population growth in last decade, with higher levels of immigration than gateway cities; after the recession, people moved to gateway markets as a safe haven. But with the exception of New York City, gateway markets have not performed as well as expected during economic downturns.