Where is Commercial Real Estate Headed in 2017?
Here are key findings from the annual Reis Breakfast Briefing held at the New York Athletic Club in Manhattan last week.
Victor Calanog Ph.D., Reis, Inc. introduced the panel, which included Anika Khan of Wells Fargo Securities, Bob Knakal of Cushman & Wakefield, and Charles Ostroff of Arbor. The panel was moderated by Barbara Byrne Denham of Reis.
The panel answered questions covering the state of the commercial real estate market and what can be expected in 2017. Here are some notes of the talking points covered by each of the panelists.
Charles Ostroff – SVP, Agency Products, Arbor Realty Trust, Inc.
Despite a high level of multifamily development, absorption has remained strong. Rent growth is slowing, but remains positive and should be in the 3 – 4% range nationally next year. All of the new development is Class A product, no one is building the Class B/C product that remains in high demand.
The current financing market is still led by acquisitions, as opposed to refinances. Sellers are also looking at certainty of execution, not only the highest bid. The caps for Fannie Mae and Freddie Mac will remain at $36.5 billion for 2017, and will act as a balloon to provide additional liquidity if needed.
The Trump administration policy will be a wait-and-see approach. While policy details are uncertain, we could be entering a period of de-regulation. It will take time to roll back Dodd-Frank, if it happens at all, as banks are already set up for risk retention. Lending is a matter of competition and lenders need to decide how much risk to take.
Anika Khan – Managing Director & Senior Economist, Wells Fargo
Commercial real estate is subject to business and economic cycles. Economists have warned that real estate has reached a mature phase and that asset values are at an alarming level. Any unbalance in the economy could disrupt prices.
We don’t have clear policy details for the Trump administration, although infrastructure is a big fiscal multiplier. It remains to be seen what level of spending will be approved. Infrastructure spending has less impact during a late stage expansion — like we are in now — than during a recession.
Bob Knakal – Chairman, New York Investment Sales, Cushman & Wakefield, Inc.
We are in the second inning of a new game. The last game ended last year. 2014 and 2015 were the best two years ever for New York real estate. Sales volume is expected to be down in 2016, compared to the previous two years’ historic levels. Land and hotel values are already declining and other sectors are plateauing. Office concessions are way up, but rents remain stable, as fundamentals are eroding and interest rates are rising.
Forty percent of residential sales in Manhattan are investors buying condos, adding pressure to the rental market. Foreign investment remains strong, as Manhattan real estate acts as a safe deposit box for foreign investment, and Brexit has been a boost.
Tax laws that are beneficial to the real estate industry, such as capital gains tax rates and 1031 exchanges, should remain unchanged in the new administration.