Article : CommercialFREE SIGNUP

NAR: Steady Growth Expected in 2017 for Commercial Real Estate

The real estate is showing tremendous growth in its activity. According to the report of the NAR, more than $500 billion loans were initiated in the commercial real estate this year. This act indicates a secure financial situation for lending. Steady rental growth, low-interest rates, and rising property values will keep on increasing. Investor activity is imperative in commercial real estate, which is driving demand for loans to finance the investment. With the New Year, people might be wondering that future holds commercial real estate financing. The market will continue the upward trajectory of increased lending activity. However, it is presumed that the commercial real estate sector will remain stable and offer decent amount to the investors.

Commercial Real Estate offers stability

Few months before, the recovery or stability in the commercial property was taking hold. The GDP was constantly increasing, and the job growth was strengthening because the retail sales were starting to pick in the stock market and real estate stocks. Many of the investors were finally getting the wealth and thinking to prosper. The current low-interest rate is providing a significant challenge to the people who want to generate investment income.

Forecast from NAR

 Following are the predictions, which are not different from the economist's report. Economists predicted that the cycle would reach the peak, but the growth will slow down to support the industry. CRE will undoubtedly remain stable this year with more leasing and strong economics. CRE pricing is getting high while the growth is slowing this year. Therefore, the report predicts that National office vacancy will face serious decline and fall to 12.1% this year. Industrial space will decrease to 130 bps, which creates 7.1% vacancy while the retail will fall to 7bps and the multifamily expects to be 6.5% 

NAR insight

Job services and growth in business proves to be the primary driver behind office performance. The new apartment construction proves to be leading for the multifamily market. According to NAR, Chief Economist Lawrence Yun; this year the home prices will be increased, and the mortgage rates will also get high. People will be able to force renters to put home purchases, which will continue renting apartments. Yun noticed that the demand for the middle and small markets is rising. If potential tax reform adds business-friendly environment, it will help to accelerate the growth in CRE sector. The industrial and commercial sector will benefit from an increase in e-commerce. A growing economy will contribute to make the commercial real estate market a safe platform. Federal Reserve reportedly keeps an eye on US commercial real estate market, which will institute the interest rate larger than, expected. Fed advises the commercial lenders to re-evaluate and tighten the credit and loan requirements in CRE environment, which has sent recent increase in commercial mortgage rate after years of declines. Fed identified the major factors which will directly impact the commercial real estate lending.

Interest rates

We understand that political changes do have a direct impact on the commercial real estate market. We have anticipated that the interest rates will remain low in 2017, but the Federal Reserve will raise in the upcoming year. The increases will significantly have a direct impact. The minimal rise in interest rates will refinance the maturing loans. With the large volume of loans, most of the borrowers are looking to pursue the long-term loans to secure the favorable rates. Lender competition and availability of capital

The diverse sources and the wide availability capital will increase the lender competing in the upcoming year. Strong market fundamentals, increased property values, rising rental rates and low unemployment rates will fuel a boom in loan organizations for estate assets. The availability of capital will be strong in 2017. Capital will be accompanied with industrial product and multifamily will be in competition with the other lenders. The rise of e-commerce market will fuel the demand for industrial space. It proves to be a healthy sign for the industry which will perform well in 2017.

Amendments to CMBS regulations

CMBS lenders are following the traditional standards, which will be more selective in different types of loans that will underwrite standards. Borrowers will seek the other sources of capital to finance the real estate investment. CMBS is the source for high leverage loans in secondary markets. CMBS is the financing option for all types of deals. The borrowers can turn the banks and various life insurances companies in lower loan rates. Ultimately, the signs provide healthy financial landscape, which will transition into 2017. The availability of capital needs to remain stable for the favorable interest rates. These standards will assist in the commercial real estate market that will provide lending activity in the upcoming year. Investors are taking steps to avoid the additional risk, which will help to make the investment work.

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