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Real Estate Research Roundup – Outlook 2019

Real Estate Research Roundup - Outlook 2019

We maintain a comprehensive list of commercial and multifamily real estate research for investment and development. This is our Real Estate Research Roundup related to those real estate researchreports released at the end of 2018 and during Q1 2019 that can help understand overall trends in the real estate industry and the outlook for 2019.

We endeavor to provide short overviews of the more comprehensive reports and links to all of them, so you have a single source for high-quality real estate research.

If you would like to have your research included here, please email us at: research@cremodels.com


PwC & ULI: Emerging Trends in Real Estate

The overall theme of the 2019 Emerging Trends in Real Estate report published by PwC and the Urban Land Institute(ULI) is one of transformation and easing into the feature. The consensus among survey responses seems to indicate that the market is coming off a peak, but perhaps more of a plateau than a decline. As the cycle emerges, deal-chasing is changing rapidly as real estate investors and developers use technology more than ever to evaluate and execute on deals as the prime prospects become harder to find and more competitive to win.

New technologies and deeper data insights also enable more broadly diversified real estate investment strategies to take hold as niche product types and specialized uses are being employed to construct portfolios with true differentiation.

Integra Realty Research: Viewpoint

IRR’s annual Viewpoint publication is perennial required reading, real estate research produced by one of the largest appraisal firms in the United States. Given their broad scope and extensive national reach, their insights are worth reviewing and keeping nearby as a handy reference.

For real estate analysts, they also provide their data in Excel format for easy use when creating models that rely on market data. Some of they key points highlighted in the 2019 report include:

  • 2017 tax cut legislation caused the economy to surge in mid-2018, but Real GDP is expected to flatten to 2.6% in 2019.
  • The housing market is softening, with new housing starts down 6% Year-over-Year and tightening of labor, lumber and land causing a ripple effect.
  • There is an abundance of investment capital, but indices show greater risks emerging.
  • Employment conditions are shifting, and gains may slow.

Deloitte: Expectations & Market Realities in Real Estate

“Uncharted Territory” is the theme of the Expectations & Market Realities in Real Estate research report published by Deloitte. The title is a nod to the long-running U.S. economic expansion. The current expansion will mark its 10-year anniversary this July and also set a new record for longest economic expansion in recorded history. Given that backdrop, along with still low unemployment below 4%, the report takes a look at what could be ahead for U.S. and global economies and commercial real estate markets in 2019.

Some of the key trends to watch in 2019 include:

  • Solid property fundamentals are supporting high valuations and continued high prices across all property types, even retail, which has struggled in recent years due to competition from e-commerce.
  • Commercial real estate will rely more on Net Operating Income (NOI) to drive total returns moving forward due to slowing value or price appreciation, especially as it relates to core assets in gateway markets.
  • Technology is continuing to transform every property type and the industry as a whole as it increasingly influences investment decisions.

Goldman Sachs: US Economic Outlook

The Home Stretch

The U.S. economy could very well be headed into the “home stretch” of the recovery cycle after nearly a decade of growth. Overall, the outlook for the U.S. economy in the coming year is for slower, yet still positive economic growth. Yet even though Goldman Sachs is anticipating “meaningful deceleration” in some key indicators in the coming year, that could actually be a big positive in extending the expansion cycle by reducing the risk that the economy gets overheated. In addition, it will take some time for that slowdown to emerge. The U.S. economy had solid momentum rolling into 2019 that is expected to sustain above trend growth in the first half with a slowdown taking hold in the second half of the year.

The report also addresses the elephant in the room – recession risk. Given that neither core inflation nor unit labor cost growth look worrisome at the moment, Goldman Sachs does not think it makes sense to characterize the economy as “late cycle” at this point. In fact, the Goldman Sachs recession risk model indicates that recession risk is still quite low, which suggests that the expansion is on course to become the longest in U.S. history and could even extend its positive run for “subsequent years” beyond 2019.

PGIM Real Estate: Real Estate Trends to Shape the Next 12 Months

The PGIM Real Estate research report points to a common theme in annual research reports – what’s next for investors in the long-running economic growth cycle. Despite stable transaction volume, the report points to a sense of caution among investors and lenders that is linked to concerns about elevated real estate pricing, a more challenging environment for generating yields, a perceived scarcity of investment opportunities and heightened political uncertainty. At the same time, there continues to be plenty of capital and competition for commercial real estate acquisitions.

The report highlights nine trends that could impact commercial real estate strategy in the coming year that include:

  • All eyes will be on the Fed and its continued actions to tighten monetary policy.
  • Resilient global growth continues to support most occupier markets, notably falling vacancies for office and logistics.
  • Rising construction costs could drag on the supply pipeline and point to upside risks to the rental growth outlook for 2019.
  • Landlords will continue to be impacted by growing demand for co-working and flexible office space.
  • Yield compression will likely slow amid rising interest rates and upward pressure on the risk premium.
  • Transaction volume appears stable, although portfolio deals could be a bigger driver for activity in 2019.
  • The prospect of value write-downs by retail REIT pricing suggests retail is going to remain out of favor in the coming year.
  • Low core returns and a rising share of value-add capital raising suggests further investment in operating assets that offer an additional risk premium.
  • Lender discipline will persist with caution that will keep downward pressure on LTVs, creating more opportunities for debt funds.

RCLCO: Sentiment Survey

Downturn on the Horizon

Over the past few years, RCLCO sentiment surveys have indicated continued confidence in commercial real estate. The 2016 presidential election and the Tax Cuts and Jobs Act that was approved in late 2017 both had a positive impact on sentiment. However, respondents in the year-end 2018 Sentiment Survey were noticeably more pessimistic regarding their current and future outlook for commercial real estate. Some of the notable findings include:

  • Nearly half of survey respondents (48%) said national real estate market conditions are moderately or significantly worse today than they were a year ago. This is 33% higher than in the mid-year 2018 survey.
  • 46% of respondents believe the downturn has already begun or will start in 2019, a 16% increase from the mid-year 2018 survey. That being said, 95% of respondents believe the impact of a downturn will be “slight” or “moderate.”

Mortgage Bankers Association: Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations

Q4 2018 Release

2018 ended on a strong note for commercial/multifamily lending activity. Mortgage originations rose 14% in fourth quarter, which lifted originations 3% during 2018. By property type, originations for multifamily properties increased 22%; industrial rose 12%; and originations climbed 5% for hotel properties. In contrast, office property originations were down 7%; retail properties declined 13%; and healthcare properties dropped 16%.

Government Sponsored Entities (GSEs) and life insurance companies reported the biggest increases in originations at 16% and 10% respectively. Meanwhile, loans for commercial bank portfolios decreased 10% and loans for CMBS fell by 26%.

National Real Estate Investor: Investor Market Outlook

This annual special issue of the magazine focuses on forward-looking market trends and insightful forecasts from industry professionals. Articles cover a wide range of sectors, such as capital markets and interest rate forecasts to e-commerce, logistics, sale-leasebacks, opportunity zones and private equity real estate investment among other topics.

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