“You miss 100 percent of the shots you never take, and if you think it’s expensive to hire a professional to do the job, wait until you hire an amateur”.
The U.S. property market landscape in 2017 will be characterized by continued strong fundamentals, increased investor flows, and high transaction volume. As for the economic landscape, the U.S. continues to grow moderately and add jobs. U.S. employment gains continue to be strong, with unemployment dropping below 5 percent earlier last year, and adding to demand for commercial real estate in a variety of sectors. Many are surprised we have not reached the end of the current economic growth cycle. The fact that the recovery was so protracted and that growth relatively anemic over the last seven years leads me to believe that we may have another two years left in the current growth cycle.
The U.S. Federal Reserve made it clear last December that the central bank sees U.S. growth as relatively stable, notching the federal funds rate higher by a quarter point in early December. This is only the second time since 2006 that the Fed has raised rates (the last time was in December 2015). “Economic growth has picked up since the middle of the year,” said Janet Yellen, the Fed’s chair. “We expect the economy will continue to perform well.” Nevertheless, underlying inflation is extremely tame in the United States and in major emerging markets (with worries of deflation in some sectors and countries), providing no impetus for significantly higher rates. Lending rates and fixed-income rates of return will still be very low by historical standards, inducing continued levered purchases of real estate assets.
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These five trends will play a significant role in commercial real estate in 2017 (Trends 4-5 are presented here, with Trends 1-3 in Part 1):
- VOLATILE ENERGY MARKETS
Energy market volatility has already affected certain regional U.S. economies (Houston, North Dakota) and producer nations (Saudi Arabia, Venezuela). 2015 saw a dramatic drop in oil prices, and the drop continued through the year, followed by substantial volatility through the year and prices rising in the last quarter of 2016. Increased production and reduced demand due to slowing global growth led to the decline which saw oil prices fall from 105.79 in June, 2014 per barrel to a 13-year low $30.32 in February, 2016 per barrel with recovery to just $49.78 in October, 2016. The world is oversupplied, and major oil-producing countries have barely reduced production. This has had a profound economic impact and carries with it implications for property market fundamentals and commercial real estate pricing.
Exhibit 4: Cushing OK WTI Spot Price FOB Dollars per Barrel (Source: U.S. Energy Information Administration)
The impacts of this environment vary considerably by region and sector. Negative effects are largely concentrated in a few metropolitan areas with high economic exposure to the energy industries (including Houston, Texas and the oil shale region in North Dakota). For most metro areas and property types, lower oil prices have been a net positive. Spending less on gasoline encourages consumers to spend more on other items, which help retail and hotel market fundamentals. Lower oil and energy costs will also reduce certain construction, manufacturing, and logistics costs.
This aids business investment and expansion, which, in turn, increases demand for industrial and manufacturing space. Property markets will see a short-term lift due to a combination of improving tenant fundamentals and lower operating costs.
However, for major energy-producing metro areas, the short-term benefits of low prices will be discounted by the negative impacts on energy-related firms. The long-term health of the property markets in these metro areas will greatly depend on the speed in which oil prices rebound to sustainable levels for U.S. producers. The national economy overall is better off in the near term. The United States is still a net importer of oil at about $190 billion per year, and the decline in prices positively influences the nation’s trade balance. Lower prices directly translate into an increase in household disposable income. Americans have seen a $50 billion to $75 billion ($400 to $650 per household) in gasoline savings this year alone.
Trump has promised significant environmental deregulation for domestic oil, share gas and coal domestic producers. He has also pledged to free the long-standing legal barriers to exporting all three to global economies, making the U.S. a net energy exporter. While this may be good in the short-term for the producers and processors of the energy industry, it might further depress prices on the global market creating another glut which could force lower production levels for the U.S. in the mid-term. However, predicted higher global growth in 2017 and after could absorb this additional supply and avert a price collapse.
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- SLOWING NEW SUPPLY FOR COMMERCIAL REAL ESTATE
Additions to supply will remain limited across the board, with only modest supply growth in a few sectors—multifamily (slowing as we move into 2017), senior housing (creeping up), and single-tenant industrial (regional/nodal distribution centers)—and repurposing in others (suburban malls). Lending sources were extremely skeptical about funding new construction coming out of the last recession, and the current lending environment is showing signs of reticence as bank reserve requirements from Basel III and CMBS risk retention requirements from Dodd-Frank have come into effect in late 2016. It seems likely that Trump will attempt to roll back, simplify and reduce regulations across several sectors including the financial sector and energy.
However, the current relatively low level of supply is not so much due to over-regulation but simple market forces and stringent lender discipline. Even if Dodd-Frank were to be rescinded, the banking system would take years to return to its old levels of funding commercial real estate and its looser underwriting standards. Since many local and regional banks exited real estate lending altogether and seem to be no worse for it, I don’t see an immediate push by this group to get back into commercial lending since prices have inflated and interest rates have gone up. Market volatility has sharply reduced CMBS offerings as well. Insurance companies are stepping in to fill some of the gaps, and private debt funds are emerging as an alternative space.
Exhibit 5: Third Quarter 2016 Completions: Office, Retail & Apartment Sectors (Apartment and office figures are based on 82 metros; retail on 80 metros. Source: REIS, “Construction First Glance Report”, 3Q 2016.)
Of all the property sectors, only multifamily can be said to be near long-term new supply, although office is seeing some marginal supply additions in a only a handful of markets for the first time in years. Medical office supply remains at a fraction of its long-term levels due to the long-term uncertainly around the implementation of the ACA and now there is continued uncertainly around the potential dismantling the ACA by Trump.
Tenants, particularly medical tenants, are traditionally extremely risk-averse, and the perceived risk of further regulatory changes will keep most hospitals and doctors on the sidelines of development, reluctant to sign up for brand new buildings all the while continuing to expand in existing buildings.
The above article was drawn from The Advisor’s Guide to Commercial Real Estate Investment, and originally published by The National Underwriter Company, a Division of ALM Media, LLC, as well as a sister division of ThinkAdvisor. As a professional courtesy to ThinkAdvisor readers, National Underwriter is offering this resource at a 10% discount (automatically applied at checkout). Go there now.
10,561 Units Under Construction
In addition to the 10,561 units currently under construction, there are 23,060 ” planned and 7,911 units in the early phases. That’s a total of 41,532 units. CLICK HERE for detailed list of new construction or use the map link.
Map of Apartments Available
We keep track of all apartments advertised. The interactive map shows the location and quantity of units advertised in Phoenix Metro area. CLICK HERE for a detailed list of Apartments Available or use the map link.
Now is the time, if you are thinking of selling or purchasing your Land or Commercial Building in Phoenix, Scottsdale, Maricopa County, Pinal County, Arizona / Office / Retail / Industrial / Multi-family / please call me on my cell 520-975-5207 or e-mail me firstname.lastname@example.org
Phoenix Commercial Real Estate and Investment Real Estate: Investors and Owner / Users need to really know the market today before making a move in owner user Commercial Properties, Investment Properties and land in Phoenix / Maricopa County, Pinal County / Arizona, as the market has a lot of moving parts today. What is going on socio-economically, what is going on demographically, what is going on with location, with competing businesses, with public policy in general — all of these things affect the quality of selling or purchasing your Commercial Properties, Commercial Investment Properties and Commercial and large tracts of Residential Land Therefore, you need a broker, a CCIM (Certified Commercial Investment Member) who is a recognized expert in the commercial and investment real estate industry and who understands Commercial Properties and Investment Properties.
I am marketing my listings on Costar, Loop-net CCIM, Kasten Long Commercial Group. I also sold hundreds millions of dollars’ worth of Investment Properties / Owner User Properties in Retail, Office Industrial, Multi-family and Land in Arizona and therefore I am working with brokers, Investors and Developers. I am also a CCIM and through this origination ( www.ccim.com ) I have access to marketing not only in the United States, but also international. Click here to find out what is a CCIM:
“The major fortunes in America have been made in land.”- John D. Rockefeller
Feel free to contact Walter regarding any of these stories, the current market, distressed commercial real estate opportunities and needs, your property or your Investment Needs for Comercial Properties in Phoenix, Tucson, Arizona.
Kasten Long Commercial Group tracks all advertised apartment communities, including those advertised by other brokerages. The interactive map shows the location of each community (10+ units) and each location is color coded by the size (number of total units).
Walter Unger CCIM, CCSS, CCLS
I am a successful Commercial / Investment Real Estate Broker in Arizona now for 20 years. If you have any questions about Commercial / Investment Properties in Phoenix or Commercial / Investment Properties in Arizona, I will gladly sit down with you and share my expertise and my professional opinion with you. I am also in this to make money therefore it will be a win-win situation for all of us.
Please reply by e-mail email@example.com or call me on my cell 520-975-5207
Walter Unger CCIM
Senior Associate Broker
Kasten Long Commercial Group
5110 N 40th Street, Suite 110
Phoenix , AZ 85018
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