The commercial real estate industry ended 2016 as it began – with low interest rates, low cap rates and moderate GDP growth in most nations – but it does not feel like the same environment heading into 2017. Rising protectionism and political unrest have introduced a healthy dose of fear and scepticism as to where we are in the current market cycle and what comes next. Despite job growth, improving market fundamentals and superior yields to alternative investments, commercial real estate owners, occupiers and investors disagree about how long this cycle could – and should – continue.
Mark Rose, Chair and CEO of Avison Young, comments: “Will we see 2016 redux, or changes ahead? Pundits have taken both sides of the interest rate debate, from low rates indefinitely to a gradual return to historical levels. Meanwhile, virtually all developed countries piled on additional debt, ensuring that no government would lead the charge to raise rates. Economists disagree about how best to proceed, but a majority of business executives understand that we need to normalize rates one day – and sooner rather than later. It is hard to conceive a climate with less consensus.
“Buyers and sellers used Brexit and the U.S. presidential election to pause and gather data points. Decision-making might have slowed in 2016, but the appetite for investment in real estate continues unabated. The overarching themes of global financial growth from a depressed base and global population topping 10 billion in the next few decades provide strong support for everything related to real estate. Technology is a game-changer, potentially impacting what, where and how properties get used and constructed. If history is a guide, technology – like immigration – has redistributive impacts but can create meaningful, positive economic growth for decades to come.
“The U.K, Germany and Western Europe, the U.S, Canada and Mexico boast some of the largest GDP markets in the world, and global trade has not seized up – nor will it. North America has been the preferred destination for global capital and will continue to be in 2017. Additional, investors in this region are beginning to harvest gains, creating a ‘wall of capital’ to take advantage of any dislocations in the marketplace. This wall is one of the reasons we are predicting that North American global investors will have the U.K and, specifically, London in their sights in 2017. We believe well-timed portfolio acquisitions could produce significant returns.”