By Revathi Greenwood, Americas Head of Research
While the year offered its share of turbulence here and around the world, the end of 2017 set the stage for a buoyant U.S. commercial real estate sector in 2018. From Americas’ HQ in New York, New York, the city so nice they named it twice, here are our Top 10 things we have our eye on this year:
10. Closed-end funds are ready to pounce, with $154 billion in dry powder. Watch for investors to deploy capital aggressively into real estate in 2018.
9. The Federal Funds rate will increase. The only question is how many times? Will tax cuts and low unemployment spike inflation?
8. Medical office and industrial investment sales have tripled since 2010. Watch for some capital to continue to shift to industrial and niche subsectors.
7. U.S. coworking use totals more than 30 million square feet across more than 1,000 locations. Look for coworking to continue to proliferate with new entrants into the market.
6. Headcount and wages will rise in fulfillment centers. Labor costs account for more than 50% of warehouse operating costs, and hourly average wages have risen 22% during the recovery. Watch for labor increasingly to be prioritized in warehouse/fulfillment site selection.
5. Big Tech grows up. In 2017, Big Tech accounted for 17 deals for more than 100,000 square feet of Class A office space in San Francisco. Watch for Big Tech to continue take interest in premium space.
4. Development pipelines. The U.S. has 97 million square feet of office space under development and 232 million square feet of industrial space. Watch for elevated development pipelines and, possibly, an uptick in vacancy in select markets.
3. The best of times, the worst of times for retail. As store closures peak, strong malls will continue to reinvent and thrive. Watch for more retail M&A and continued e-grocery growth, too.
2. What could disrupt the stock market, one way or another? Tax cuts’ wealth effect could certainly push it higher. Potential headwinds include domestic policy shifts, rising inflation and interest rates, geopolitical shocks, and shifts in investment capital.
1. Primary recession indicators are muted.
- P/E ratios are elevated but have been much higher.
- Household debt levels are stable, and balance sheets are strong.
- Home prices relative to income are at historical norms.
- An oil-price spike is highly unlikely.
- 100-basis-point spreads don’t suggest an inverted yield curve is on the horizon.
- And the Leading Indicator Index continues to surge.
As we enter 2018, what are you watching?
Revathi Greenwood is the Americas Head of Research for Cushman & Wakefield with overall responsibility for the research platform within the Americas region. She provides leadership to hundreds of professionals who are focused on producing predictive, timely and interpretative analysis on the latest real estate trends.