Commercial Real Estate Investment Trends To Watch In 2017

The world is “oversupplied,” and it is predicted that profound economic impact, implications for property market fundamentals, and commercial real estate pricing will be affected in the investment and CRE markets in 2017. According to National Real Estate Investor, high transaction volume, increased investor flows, and strong fundamentals will shape the United States property market this year.  Here are the five trends that will play a significant role:

  1. Global economic and political uncertainties.

The Brexit vote in the U.K. has added new uncertainties that will not be fully understood, much less resolved, in the near term. The IMF has downgraded global growth twice since January as uncertainties blur the outlook. For U.S. markets—real estate in particular—the impact is likely to be largely positive as U.S. assets become more attractive and valuable to global investors. We can probably expect enhanced inbound foreign investment in U.S. real estate as the U.S. becomes even more of a safe haven.

  1. Low interest and cap rate environment.

While it seems fairly certain that the Fed will seek another rate hike before the year is out, it should be minor. The funds rate could be boosted by perhaps 0.25 percent to 0.50 percent in 2016 and the same in 2017, but both inflation and employment appear to be coming in under the Fed’s expectations. With global economic growth lower than expected earlier in the year, the Fed will more likely maintain a ‘wait-and-see’ position in the short term. We still believe that the Fed is more than likely to weigh the effects of each move it makes before adding any additional friction to current (if unspectacular) economic growth trends.

  1. Foreign investment in the United States.

Global economic and political uncertainty continues to drive capital to the United States. International capital flows into U.S. real estate assets will continue—and increase. The U.S. property market is the most stable and transparent in the world, with higher relative yields and price appreciation potential, making it an easy investment choice. And, while slowing growth in China and much of Europe may dampen currencies and incomes over there, there is still abundant non-U.S. capital looking for placement and very strong demand for U.S. assets, as 2015 proved with record inflows. In 2015, foreign purchases of U.S. real estate assets rose to more than $87 billion over the 12 months ending in December, according to the Association of Foreign Investors in Real Estate (AFIRE), with China, Canada, Norway and Singapore all riding the wave. That volume is up from just $4.7 billion in 2009, according to research firm Real Capital Analytics. Among members of AFIRE, a substantial percentage expect to increase investment in the U.S. in 2017.

  1. Volatile Energy Markets.

Energy market volatility has already affected certain regional economies (Houston, North Dakota) and producer nations (Saudi Arabia, Venezuela). Last year saw a dramatic drop in oil prices, and the drop continued into early 2016, followed by substantial volatility through mid-year. Increased production and reduced demand due to slowing global growth led to the decline which saw oil prices fall from $110 per barrel to a 13-year low $27 per barrel in early 2016, with recovery to just $43/bbl in July.

*National Real Estate Investor

A Look at Global Shopping Center Development

Development activity for shopping center space around the world continues t be focused in China. According to a Global Viewpoint from CBRE Research report, more than half of the shopping center space under construction in the 180 countries surveyed is taking place within China’s borders. The report indicated that Shanghai takes first position with 3.3 million sq. m. of space under construction—more than the combined total of all 86 European cities excluding those in Russia and Turkey. Just behind Shanghai is Chengdu with 3.2 million sq. m., followed by Shenzhen and Tianjin with 2.7 million sq. m. and 2.5 million sq. m. under construction.

“The scale of new development in Asia and China in particular is staggering but there are a number of quite understandable factors behind it. The most reported is economic growth, which continues, although now with some signs of slowing down. In addition, Chinese cities, and many others in Asia, present a physical environment that lends itself to environment controlled shopping centers. Outdoor shopping can be too hot, too humid, too cold, too wet, too unsafe or too dirty and polluted—modern shopping centers are none of these when managed properly,” said Sebastian Skiff, Executive Director of CBRE Retail.

“China cities, unlike their Western counterparts have far higher urban densities of people that rely on public transportation, and these populations are also relatively ‘new ‘. Chinese cities of today are not old in terms of large scale historical commercial architecture. Very few cities for example have an equivalent historical commercial area quite the same as must-keep streets like Regent Street in London or the Champs Elysee in Paris. There’s plenty of cultural architecture but very little of a commercial background,” Mr Skiff added.

“Add these factors together and you then have numerous opportunities to build new modern facilities right where the people are living, connected by mass public transport systems, unrestricted by what has gone before. This urban population do not drive to neighborhood shopping strips as they do in the West and therefore the best, most efficient, model for providing diversified shopping requirements under one roof in an environmentally controlled manner around a public transport hubs comes in the form of the shopping center,” said Mr Skiff.

According to another global report by CBRE, the worldwide shopping center development pipeline has continued to increase, reaching 41.9 million square meters in 2015, from 39 million square meters in 2014, and with Asian cities dominating all of the top ten most active global markets. Globally, a total of 39 million sq. m. of shopping center space is currently under construction across the world’s major cities, representing a three million sq. m. increase from 2013, according to the report.

Market Indicators: A “Slowing” $11 trillion Commercial Property Sector

Is danger ahead in 2017 for the commercial property sector? According to a recent article by the WSJ, defaults are rising in a key corner of the commercial real-estate debt market just as borrowing costs are set to jump, raising the likelihood of a slowdown of the $11 trillion United States commercial property sector in 2017.

The article indicates that a “financial crisis-era regulation is about to take effect.” According to analysts, commercial real-estate borrowing is more expensive and complicated. “At the same time, interest rates have increased since the election of Donald Trump as the nation’s 45th president last week and seem poised for a sustained rise from recent historic lows, which would further squeeze an industry built on borrowed money.”

As the commercial property market enters its eighth year of expansion, there are “worries” present. In larger markets across the United States, it was noted that landlords are battling a slowdown in sales and rising vacancy rates. According to Real Capital Analytics, commercial property sales volume was down 8.6 percent in the first nine months of 2016 to $345.4 billion.

Real Capital Analytics  indicates that sales of commercial properties slipped 43 percent year-over-year in October. The new edition of US Capital Trends shows that for the first 10 months of 2016 total transaction volume is 12 percent off the levels seen through the same period in 2015. “The decline in October is in part a reaction to the heavy portfolio and entity-level transaction activity of 2015, with volume for such deals down 64 percent YOY, while the pace of megadeal activity in October 2016 is on par with the average monthly pace for Octobers in 2012, 2013 and 2014.” It was also indicated that deal activity was down in October for single asset market as well, though at 27 percent YOY not as sharply as megadeals. For the year to date, single asset deal volume is still only 2 percent off the levels seen through the same period in 2015.

Moody’s reported that more than 5.6 percent  of some $390 billion worth of commercial property mortgages that have been packaged into securities was more than 60 days late in payment in September, up from a 4.6% delinquency rate earlier this year. And adding to the market’s worries, the WSJ also writes that there are new rules that go into effect on Christmas Eve under the Dodd-Frank regulatory overhaul requiring issuers of commercial mortgage-backed securities to keep at least 5 percent of the securities they create.

“You couldn’t have planned worse timing,” stated Tad Philipp, director of commercial real-estate research at Moody’s. More than half of the bonds issued in 2005 and 2006 for New York properties were refinanced by such lenders, according to a report earlier this year by CrediFi, a real-estate data and analysis firm.

Commercial Real Estate Still Continues To Firm

 

Reit.com recently took a look at the Urban Land consensus outlook in which it was indicated that commercial real estate still continues to firm. The “ULI Real Estate Consensus Forecast” is a semiannual survey of economists and analysts at the nation’s leading real estate organizations. The forecast findings include both near-term and longer-term projections for a wide variety of key economic and industry indicators, ranging from employment figures to housing starts to property sector performance.

The most recent survey was conducted in September, and involved 51 leading real estate economists/analysts from 37 organizations. Results were released on October 19 with a webinar and panel discussion featuring Gadi Kaufmann, Managing Director/CEO of RCLCO, Jim Clayton, Head of Investment Strategy & Analytics of Barings Real Estate Advisers, Eileen Marrinan, America’s Director of Research of Grosvenor, and Josh Scoville, Senior Managing Director of Hines.

“Commercial real estate markets are expected to continue to firm in the next three years, albeit possibly not as robustly as during the past three, according to a recent survey of industry economists,” Reit.com noted in its story. According to the survey, following six years of growth, commercial property transaction volume is expected to decline over the next three years to $428 billion in 2018, according to a new three-year economic forecast from the Urban Land Institute (ULI) Center for Capital Markets and Real Estate.

It was also indicated that while findings in the recent Consensus Forecast for October 2016 point to continued economic expansion over the next three years, it is expected to slow down in pace. Compared to six months ago, survey respondents have also reduced their expectations about interest rates, housing starts, and private real estate returns. Issuance of commercial mortgage-backed securities (CMBS).

This is a key source of financing for commercial real estate which had grown consistently since 2009 to $101 billion in 2015, is expected to decline in 2016 to $70 billion before resuming growth in 2017 and reaching $90 billion in 2018. Additionally, compared to six months ago, forecasts for housing starts over the next three years are less optimistic. Single-family housing starts are projected to increase from 714,500 units in 2015 to 875,000 units in 2018, remaining below the 20-year annual average.

“The length of the current expansion may weigh on forecasters’ minds, as well as uncertainty about the upcoming presidential election and economic and political turmoil abroad,” said ULI leader and survey participant William Maher, director of North American strategy and research, LaSalle Investment Management. “U.S. real estate markets are intricately tied to the broader economy and capital markets, both of which are growing more slowly than earlier in the cycle.  It is no surprise that the real estate market is following suit.”

Meeting The Demographic Challenge In The Urban World

 

One of the most powerful forces transforming the world economy today is demographic change. In a recent McKinsey & Company report, global population growth was indicated to slow and urbanize plateaus in many regions, the outlook for cities and their growth changes profoundly.

“Cities, which have powered the world economy for decades, are now facing a significant demographic challenge to their growth,” the report indicated. How they respond to the pressures will be critical for the health of the global economy in the years ahead. The MGI findings include:

Population growth has been the crucial driver of cities’ growth. In a sample of 943 global cities with more than 500,000 inhabitants in their metropolitan regions, 58 percent of GDP growth between 2000 and 2012 came from expanding population.

Rising per capita income, which also includes the scale benefits to local economies from growing population, contributed the other 42 percent. ƒNow cities are exposed to a double demographic shift—markedly so in developed, and increasingly so in developing, regions.

First, global population growth is slowing due to declining fertility rates and an aging world. Second, the pace of rural-to-urban migration is waning in many regions. ƒAs a result, population declined in 6 percent of the world’s largest cities—most of them in developed economies—between 2000 and 2015.

From 2015 to 2025, we expect population to decline in 17 percent of large cities in developed regions and in 8 percent of all the world’s large cities. ƒ The impact of the double demographic shift on cities promises to be uneven. Cities’ growth prospects will reflect very different demographic footprints and dynamics shaped by their local birthrates and death rates, net domestic migration, and net international migration. MGI compared three developed regions to understand the implications.

The report suggests to sustain economic prosperity in the face of changing demographics, most cities need to sharpen their focus on citizens and raise productivity to boost incomes and be able to meet rising expectations with existing resources. “Many more cities are likely to design strategies to appeal to particular demographic groups as they compete with other urban areas to retain and attract citizens,” McKinsey Global Institute noted. “Cities will need to demonstrate flexibility in adapting to the demographic challenges that lie ahead, and focus on maintaining their dynamism and vibrancy to attract talented workers and successful businesses.”

Investors: What Donald Trump Means For Your Stocks

 

While the current stock market may look optimistic to some investors, factors such as Donald Trump’s candidacy may play a role in providing lasting sustainability in the rally. Last November, United States home sales rose higher, with homebuilding stocks emerging as winners in the present market, any investor surely thanked the improved home sales numbers back then.

Donald Trump and Hillary Clinton were noted to “barring something extreme” by The Street’s Jim Cramer this month, as he referenced this in terms of political uncertainty which Cramer views must be resolved. For investors, Cramer also stated that we can now resume preparing our stock portfolios for either eventuality, which means in his view, this box has been checked.

The global financial crisis delivered disruptive change with the bursting of the housing bubble, which, as a result, has been through transformation in itself whereby homeownership is pulling back from the approximately 70 percent of households seen at the extreme of the bubble to 63.4 percent in the second quarter of 2015, according to PWC.

According to findings from the Commerce Department, home building sales increased 4.3 percent to a seasonally adjusted annual rate of 490,000 units. October’s sales was adjusted, falling to 470,000 units from the previously 495,000 units reported.

Lennar Corporation (NYSE:LEN) is arised as a winner from last November’s home sales growth. The homebuilding stock reported its fourth-quarter results, and surpassed the Zacks Consensus Estimate for earnings. LEN has adjusted earnings of $1.21 per share with a stock increase of 13 percent year over year driven by improved SG&A leverage, other revenue, and joint venture.

“You are never going to have all the planets align at once. But there are enough checks and half-checks for me to say that it makes sense to buy the dips in this market,” Jim Cramer said.

Today’s consumers are seeking value. The real estate market in the United States is filled with many niches, with significant diversity participants in asset types. For investors, it is imperative to keep an eye out for specific trends and conditions which may shape the equity and debt participants in the real estate capital markets for 2016 and beyond.

Real Estate Sector “Optimistic” on Trump’s $1 Trillion Infrastructure Plan

 

As uncertainty is said to be “enormous” with Donald Trump as president, there are real estate executives who have an optimistic view when it comes to Trump’s promise to improve infrastructure through his proposed $1 trillion infrastructure plan to be implemented within the next ten years. Joseph Sitt, the CEO of Thor Equities stated during a Swiss Economic Forum event earlier this year, “I have been saying for a long time that investing in modernizing our infrastructure will improve the U.S. economy as well as create much needed jobs for the working class, and thus be a driver of economic well-being for all income levels.”

 

“We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it,” Trump said.

 

Marcus & Millichap stated that the United States economy should continue to grow as the new president takes office. As the company says, the United States economy is now in its seventh year of a durable but moderate expansion. Marcus & Millichap also indicated that 2 million to 2.5 million new jobs should be added during the next year. The country currently has an unemployment rate of 5 percent and 5.5 million unfilled job openings.

 

“Faster economic growth could result in inflationary pressure, pushing interest rates higher.” The firm also highlighted that mortgage interest rates have already jumped following Trump’s election, with many economists predicting that the average interest rate on a 30-year, fixed-rate mortgage loan might soon hit 4 percent. Marcus & Millichap also predicted that a volatile stock market — which dropped sharply immediately following Trump’s win and then rebounded quickly — is definitely a possibility.

 

According to Commercial Observer, there is reason for optimism—a cautious optimism—across the nation. “If Trump can accomplish what he says he intends to, there will be a benefit to the real estate market,” the media site noted. “Everyone has been surprised thus far, so many in commercial real estate will be hanging on every Trump word and appointment and won’t make any major bets until the signs are clear.”

 

Marcus & Millichap also said that Congress should be able to pass a new budget under President Trump and increase the debt ceiling when needed, all events that should spur the confidence of real estate developers and investors. Additionally, the firm suggested the potential for reduced taxes, an increase in infrastructure spending and business deregulation, all of which could provide another spark to the nation’s economy.

What Real Estate Developers Think About South Florida and Trump

 

It looks that South Florida real estate developers are viewing Donald Trump as president-elect as a “boon” to the area’s real estate environment. It doesn’t help to add to the fact that he is rooted in the real estate industry to begin with. Here is a further take on what real estate developers are saying, according to The Real Deal:

Ezra Katz, founder and CEO of Aztec Group

“Our future president is a very knowledgeable real estate and construction person, and he understands the world of real estate better than any politician, ever,” Katz told TRD. “He will create jobs that are positive for us and positive for the industry and create an enhanced opportunity for foreign investors to consider South Florida as a viable investment.”

“All the campaign rhetoric on both sides is gone and now we will deal with reality,” he said. “You have to run a country and be a leader in the world and that will be his focus, on the business side and on his statement that he is there to create jobs that are viable,” he said.

Developer Don Peebles, chairman and CEO of the Peebles Corporation

“And as a real estate developer who has relied on foreign investment in his projects, I would expect him to make sure the regulatory environment will be conducive… and make it easier for foreign investment,” Peebles told TRD.

Developer Gil Dezer, president of Dezer Development

Dezer noted to TRD that that most South American investors don’t move their families or businesses to Miami when they buy properties here, meaning they wouldn’t be affected by any changes in immigration policy. ”Trump’s election is also bound to raise consumer confidence, which in turn buoys all aspects of the economy, including real estate.”

EWM International Realty CEO Ron Shuffield

Outside of actual policy changes, Trump’s at times uncouth remarks have left bad tastes in the mouths of many foreign nationals watching the country’s election from afar. But that likely won’t stop the wealthy among them from continuing to invest in real estate stateside

“Above all other demographics, ultra-high-net-worth homebuyers are tapped into the financial world and base their investments on its ebbs and flows. Of the stock markets’ steady rise as the news of Trump’s victory broke early Wednesday morning are any indication, the financial world is reacting favorably to a Trump presidency will probably translate into more luxury buyers pulling the trigger on a home purchase,” Shuffield said. “All of these economies are built on confidence,” he said. “Really it’s just a psychology game.”

On top of that, Shuffield also said to TRD, Trump began tempering his trademark vitriol and rhetoric in the months leading up to the election, which could be an indication that his behavior will change once he’s actually in office.

*The Real Deal

“Uncertainty Is Absolutely Enormous” When Trump Is President

 

Economists believe that Donald Trump’s win as America’s president “upends” United States economic forecasts. According to the Wall Street Journal, Donald Trump’s surprise win is set to force U.S. economists to rip up their forecasts as the world’s largest economy sails into uncharted waters. Prior to last month’s election, economic forecasters typically agreed that in the United States. continued moderate economic growth would be promising. Federal Reserve policy makers, Congressional Budget Office analysts and Wall Street economists were predicting gross domestic product growth around 2 percent and unemployment below 5 percent for the next few years.

A Fed interest-rate which was expected to increase in December looks less likely now, and WSJ also noted that the uncertainty that has dogged the U.S. economy in the run-up to Tuesday’s vote could persist and deepen.“In the short term, I’m expecting to see a clear and unambiguous drop in business and consumer confidence,” Mr. Shepherdson said. “The joy among Trump supporters will be more than offset by the shock and misery among non-Trump supporters.” WSJ also took a further look at the overall economy and stated that a pullback in spending by “wary businesses” could halt the economy in its tracks. “Is that enough to trigger a brief recession? It could be,”

In South Florida, real estate industry players “welcome” Donald Trump’s presidency. For developers and brokers, a Donald Trump presidency is good for business, had stated to The Real Deal. In the article, Developer Jules Trump sees a the president-elect as a boon to South Florida’s real estate market, at a time of volatility of the stock market and the decline in foreign currencies. “It sort of reinforces the belief that most of our buyers of real estate have, that long-term your safest investment is in high quality real estate,” he said,

For commercial real estate, the future seems optimistic for the sector. According to the developer of Acqualina, Mansions at Acqualina and the upcoming Estates at Acqualina in Sunny Isles Beach, stated to The Real Deal, “You have a president who comes out of the real estate business, and whatever anyone may say about him, he is clearly an accomplished businessman and will do things that are good for the real estate business, given a low interest rate environment and minimal alternatives to investment,” said Trump, who is a native of South Africa and of no relation to the president-elect. “We could be in for a very good time in real estate going forward.”

South Florida Commercial Real Estate After The Election…

 

Now that the commercial real estate market has witnessed the selection of Donald Trump, our next president, we can now look forward to reconnecting with the real world again. “Commercial deals also have not been immune to the political uncertainty,” according to The Real Deal. In an article which highlights that Colliers International South Florida broker Mika Mattingly has seen longer due diligence periods for commercial deals, but not a slowdown because of it. “Investors are jittery,” she had told TRD, and also added to her statement that the commercial market is due for a correction regardless. “People like to have timeframes as a reference.”

At a recent legal summit, called Key Transformational Moments in Latin America: A Region in Flux, Akerman LLP partners Luis A. Perez and Pedro A. Freyre had said to The Real Deal that President Donald Trump’s developer’s anti-trade, anti-immigration policies would severely damage Miami’s development as a gateway to Latin America. Perez and Freyre were featured speakers at the annual ALM-Akerman U.S. Latin America Legal Summit, which had taken place this year at the Four Seasons Hotel Miami at 1435 Brickell Avenue.

“A victory by Trump would mean more restrictions and more scrutiny of money coming in,” Perez said to The Real Deal. “If he prevails, Latin Americans would see it as the U.S. rejecting investments and immigration originating from Latin America. That would have a profound impact in Miami.” Freyre reiterated Perez’s comments. “Trump’s proposed policies send the message that the U.S. is not interested in building bridges to Latin America.”

Panelists at the event also said that foreign investors, who have already been on the decline due to weakened foreign currencies, could also be deterred by Trump’s anti-trade, anti-immigration policies. “A victory by Trump would mean more restrictions and more scrutiny of money coming in,” Akerman partner Luis A. Perez also said. “If he prevails, Latin Americans would see it as the U.S. rejecting investments and immigration originating from Latin America. That would have a profound impact in Miami.”

Perez had also said that Miami’s real estate market has really not been impacted by more government scrutiny – such as the Treasury Department’s new rules requiring title companies to reveal the identities of all cash buyers of luxury condos in Miami and Manhattan. “Money that is transparent and can be traced to a legitimate source is not much of a problem,” Perez noted. “I think investment continues to come into Miami. Just look at the level of construction that is still going on.”

What Donald Trump’s Presidency Means For Real Estate Investors

 

#Election2016. Donald Trump is now going to be our 45th president of the United States. So what does Trump’s new presidency mean for real estate investors? We will take a further look at some key aspects such as overall market economics and tax proposals. According to Northern Trust the combination of the Republican wins in the White House, House of Representatives and Senate bodes well for tax reform, including the potential for repeal of the 3.8% net investment income tax and even the possible repeal of the gift, estate and generation-skipping transfer taxes. Here is Northern Trust’s list of key stats:

 

Trump and Tax Revenue

– The Republican sweep is expected to materially impact the work of the Department of Treasury in rewriting the pending proposed regulations regarding the gift and estate tax valuation of family controlled business entities.

– Estimates of the revenue reductions associated with the Republican tax proposals vary widely.

– But the realities of persistent underemployment of workers who entered the workforce or were displaced during the Great Recession, and the health and Social Security benefit costs of our aging population will continue to drive demand for tax revenue.

 

Overall Market Economics for Investors

– Defying the betting odds and pollster predictions, Donald Trump has pulled off an improbable victory.

– Trump will enter the White House with an extremely low approval rating, and with a populace battered and bruised from a divisive campaign.

– Although the Republicans hold the majority in Congress, Trump will need to build broad support from his party in order to govern effectively.

– Trump’s presidency also brings an additional layer of risk, at least over both the near and intermediate terms: that of general policy uncertainty. He truly represents the “unknown unknown.”

– Global capital market reaction has been swift. Equity, fixed income and currency markets are displaying a definitive “risk off” sentiment, reflecting deep concerns with Trump’s stated policies.

– Similar to the post-Brexit market behavior, global risk assets are selling off, although bouncing from the extraordinarily depressed overnight levels.

– It is important for investors to remember that the post-Brexit market reaction was short lived and the markets may swiftly regain equilibrium from this post-election response as well.

– The populist message of this election is clear, and President-elect Trump and Congress will have to find some common ground to address the issues the election illuminated. This will take time.

*Northern Trust

For investors, Northern Trust advises to keep calm and carry on. “Looking at history, we see little correlation between who sits in the White House and equity market returns. We do, however, recognize that this result is decidedly out of consensus and unexpected. We urge investors to keep a focus on the long term and avoid the urge to react to short-term news.”

The “Ultra Wealthy” Continue To Buy Up The Real Estate Market

 

A “softening” luxury real estate market and global political uncertainty is clearly apparent, however it is still a buyer’s market for the ultra-wealthy, according to a recent survey. “High end homes prices are clearly losing altitude all around the country,” CNBC reported. In partnership with the YouGov Affluent Perspective, Luxury Portfolio International surveyed the top echelon of consumers across 12 countries, finding that the majority of those consumers were “cautious but optimistic” in the face of an uncertain and often turbulent world economy.

Those with a networth of over $50 million or more, have swelled. According to Research from Credit Suisse, more than 123,000 individuals are listed in this category. This accounted for a “whopping” 53 percent jump in just five years. CNBC reported that most of them reside in North America, where the rate of growth among the super-rich is double that of Asia and significantly faster than Europe’s.

Although high-end real estate has softened — sales of homes priced above $1 million have tumbled recently, according to recent National Association of Realtors (NAR) figures — high-net worth individuals “feel good about their lives, are confident about their decisions and have a very strong intent to purchase real estate,” the report’s authors wrote. The YouGov survey also found that 25 percent of the wealthy were looking to purchase new property over the next three years, with 18 percent looking to sell.

Outside the U.S., the mood was far more confident: 45 percent of wealthy buyers are looking to purchase real estate with only 23 percent looking to sell, the data showed. The report also showed that “nearly 1 in 4 of the Global Top 1 percent plans to make a real estate purchase in the next three years, with almost as many considering selling as well.”

The YouGov survey is consistent with what Philip White, president and CEO of Sotheby’s International Realty Affiliates, told CNBC in an interview last month. He said high-end real estate was “sort of a mixed bag, and obviously there is some slowing,” but some locations were faring better than others.

 

Philip White, president and CEO of Sotheby’s International Realty Affiliates, told CNBC in a recent interview.

“Some markets are seeing a slowdown in the high end but some aren’t,” White said, whose company cranked out $80 billion in U.S. sales volume in 2015. “It is sort of a mixed bag and obviously there is some slowing,” he said, even as he cautioned that ultra-high end sales were a much smaller slice of overall real estate turnover in the U.S.

Starwood Capital Group CEO says, “I’m bullish” on real estate

 

Home prices are presently on the rise. With the election finally coming to a close soon, international companies are seeking to make their mark in the United States travel sector. Starwood Capital Group Chairman and CEO Barry Sternlicht said this month that he is bullish about the future of the real estate market. Sternlicht stated to CNBC that his company’s broad reach across the real estate space — with hotels, apartments and malls in the United States and abroad — enables him to view the market on a broader scale.

“I think you can see acceleration in spending, incomes are rising,” Sternlicht said. “I’m seeing that real estate markets, in general, have never been better in the United States. On CNBC’s “Squawk Box” Sternlicht had also stated that the rising prices of apartments and single-family homes were major contributors to the real estate market’s success. He also said on the interview that some of the more major U.S. markets were buckling, taking a backseat to more up-and-coming cities like Seattle.

“We are seeing flashing yellow lights on affordability. People who are currently renting and want to convert into ownership — major difficulty,” said Lawrence Yun, chief economist of the NAR. “Home prices are rising way too fast compared to people’s income and wage growth.”

“There are more cranes in Seattle downtown than any city in the country, more than San Francisco and New York combined,” Sternlicht stated. Markets in cities such as Nashville, Portland, Atlanta and Denver are also seeing significant growth.

“The tight supply of homes on the market continues to constrain sales, while low mortgage rates and job growth help fuel healthy demand. This results in a pressure cooker effect, and the market’s traditional pressure release valve — new home construction — isn’t helping much, given that new home sales are running more than 40 percent below historically normal levels,” wrote Andrew LePage, research analyst at CoreLogic.

In response to Blackstone’s deal with Chinese travel conglomerate HN, Sternlicht replied, “I think for many of these Chinese lifestyle companies and travel companies, this is diversification, this is a currency hedge in case they continue to have to lower the currencies against the dollar because of the slowing growth at home,” Sternlicht said. The sheer number of Chinese customers who travel make deals like Blackstone’s reasonable, if not attractive, for Chinese companies, he said.

“I think the economy might surprise us,” Sternlicht also said in the interview. “Post the election, I think you might see companies take a more aggressive stance on spending their capital, building their plants and hiring, and the wages are going up.”

Retail Sector Expects “Modest” Outcome For Black Friday 2016

 

Industry insiders are predicting a much better performance this Black Friday compared to last year, however caution that doesn’t mean Black Friday 2016 will be one for the record books. Deloitte that total holiday sales will rise 3.6 to 4.0 percent year-over-year. Thomson Reuters indicated that its same-store sales index for September 2016 was expected to come in at -0.3 percent. This number is down from growth of 0.8 percent in September 2015.

“The holiday shopping season is one of the most competitive times of the year for retailers, but they also have a big opportunity to drive sales and acquire new customers,” said Dave Richards, global managing director, Accenture’s Retail practice. “The majority of retailers look for ways to extend the holiday season as late as possible, but can face challenges in delivering a physical product in time. Personalized promotions and pushing gift cards are a good way for retailers to continue momentum and stretch this success into the post-holiday season.”

Accenture’s latest survey of global shoppers revealed that a rising intensity that is forcing retailers to adapt more quickly to the shifting retail reality that defines the customer experience. According to the report, adaptability is the new hallmark of successful retail strategies, offering retailers a proactive way to meet the demands of consumers who are racing ahead to embrace an ever more connected and integrated shopping experience.

The National Real Estate Investor cites that that the regional mall REIT CBL & Associates has reported its malls will be closed for the holiday. A  spokesperson for Simon Property Group, the largest regional mall REIT in the country, said that “traditionally there are a handful of malls closed for Thanksgiving, but most of them will be open.”

Nearly 80 percent of shoppers with a mobile device will use it while shopping at stores this holiday season and 90 percent will research their intended purchases online before shopping at a store this year, according to ICSC. Consumers’ interest in a seamless holiday shopping experience across all shopping channels – online, in-store and mobile – is growing, especially when it comes to order fulfillment.

Chinese Market Expected To Grow In South Florida

 

More growth is expected for South Florida as Chinese investment in the United States real estate market is expected to reach $50B by 2025. According to the Real Deal, wealthy Chinese buyers have been buying so many homes in the United States that they are the top foreign country purchasing property in the United States – for the fourth year in a row. The article noted that home sales totaled more than $27 billion.

South Florida is really pushing for such buyers to its commercial real estate market. According to Daily Business Review, tapping into the Chinese market, home to the world’s second largest economy, has been a longstanding item on Miami’s real estate wish list. In the race to secure a Miami-China connection, local brokerage houses have deployed marketing trips abroad, hired Chinese-speaking agents and sought partnerships with China-based companies.

The Miami Association of Realtors is bullish about bringing Chinese buyers to South Florida, and now has a new partnership that it says will put Miami properties on the screens of thousands of prospective buyers. According to The Real Deal, the Miami Association of Realtors association partnered with Juwai, which it says is China’s Number 1 website for international property searches, according to a press release.

The allocation of household wealth in China looks a little like this: 46% bank deposits, 39% housing, and just 10-15% in financial assets, including stocks. Chinese investors tend to have a strong preference for putting their money in housing, coupled by a far weaker interest in other forms of investing, Forbes wrote in a recent article. According to China’s National Bureau of Statistics, 90% of families in the country own their own home, while Nomura estimates that roughly 21% of China’s urban households now own more than one house, with some cities supposedly boasting 200% home ownership rates.

Here Is Something You Need For Commercial Real Estate Deals

 

What may be the number one “something” every commercial real estate professional needs when conducting real estate deals? One real estate expert weighed in his opinion and stated, “Always put your faith in the human touch, above all else.” The Florida expert believes that, “When it comes to a company’s top two expenses, the answer is most often the people and the real estate — personnel and office space.” “This being the case, decisions with regard to a firm’s commercial real estate needs are not to be taken lightly,” he noted.

 

In an article by BizJournals, the expert also notes that there is a lot to understand in regards to office space. “There is a ton to understand about not only what tenants actually are paying for, but what certain responsibilities are under the leases that top executives are signing. There is a lot at stake. This is why the professionals tenants’ align themselves with — commercial real estate brokers and attorneys — will be the most important decisions made in the process.”

 

“Why is something like this a big deal? Because when it comes to how a company is run, it is all about the bottom line. Not only is that 5 or 10 percent difference going to translate into a lot more dollars being spent on ‘unusable’ space, it will mean the company also miscalculated the efficiency of how their operation can maximize the space.”
The article highlights the importance of humans in the commercial real estate industry as technology cannot replace the “human touch.” “This is where having a well-trained, experienced professionals can make a huge difference,” the expert stated. “The right broker will know the history of the building; they will know what the true loss factor of the property is as opposed to the one being marketed. They also will know the personality of the ownership and understand the nuances of the leases — as will the right attorney — which can never be underestimated when it comes to negotiations.”

The Economy Continues To Drive Strong Commercial Real Estate Market

 

The strong and growing demand for commercial real estate in 2015 carried into the new year. Commercial property transactions totaled $139 billion in January, up 15.3 percent over January 2015. Indeed, the CRE market appears to have gained momentum recently, as total sales over the past three months were 22.2 percent above the prior three months, according to data from Reit.com. The demand has boosted the construction of new properties. According to CoStar’s value-weighted commercial property price index, reported valuations rose 11.6 percent over the 12 months through January 2016, roughly in line with appreciation trends over the past three years. Reit.com also indicated that consumer spending increased 0.4 percent in January.

In September, The S&P Dow Jones Indices and MSCI had given real estate its own unique class, separating it from the gang within the financials sector. According to CNBC, the parting of ways comes as real estate as a sector has outperformed the S&P 500 with S&P’s REIT industry index up 24 percent annually since the bull market began in 2009, versus 18 percent for the benchmark. This new classification includes all real estate investment trusts (REITs) except for mortgage REITs, which now remain classified under financials. With eight years of low rates fueling a commercial real estate boom, reining it in now might keep the United States economy safer in the long run, Boston Fed President Eric Rosengren chief stated.

“Eight years of extremely low interest rates have pushed commercial real estate prices up rapidly, and they might also decline rapidly if economic conditions change,” Rosengren had commented on the event hosted by the Shanghai Advanced Institute of Finance. “It could “make a recession worse than it would have been had policymakers normalized interest rates more rapidly. He also highlighted that price inflation, the other half of the Fed’s monetary policy calculus, remains below the central bank’s 2 percent goal.

“Economic fundamentals remain strong and point to continued U.S. office expansion in 2016, supported by a strong domestic job market. The Federal Reserve’s decision to raise interest rates most likely will not affect capital flows into the commercial real estate sector” said Mr. Havsy. ”Recent changes in the Foreign Investment in Real Property Tax Act, and the extension of the EB-5 program should help to increase the flow of foreign capital into U.S. commercial real estate, while strong economic fundamentals will maintain asset valuations despite rising interest rates.”

 

A Further Look At The Brexit Impact On CRE…

 

Perhaps no one will ever understand the meaning behind “Brexit means Brexit.” CBRE’s Capital Watch took a further look into the UK’s referendum result and discovered that people are now concerned to what effect it will really have on the economy, and in particular, the property market. “We have seen a few glimpses of the vote’s impact through the closure of some of the retail funds and the sharp mark down in quoted REIT prices, but even here many funds have reopened, net inflows are again being experienced and share prices are recovering,” said CBRE.

 

Could re-focusing our attention on the market fundamentals over the longer term be the solution? The firm believes that where there is plenty of evidence to show that we are well positioned to weather any short term influences that might impact the market. “One consequence of the vote has been for boards and owners of companies to hastily review their capital structures to check they have sufficient liquidity during what might become more challenging times,” noted CBRE. “We talk to many investors, as well as to over 100 lenders to property, and what we’ve been hearing in the last few weeks about the quantum of available debt and overseas equity is encouraging.”

 

“Banks are generally in a healthier position with lower levels of exposure to real estate than in previous cycles–a crucial factor as strong relationships with lenders and access to liquidity will sustain the current position and help drive any recovery, when it occurs,” the firm stated. “Evidence also suggests that the quantum of existing loans due for maturity in the next couple of years is lower–a product of the desire over recent years for borrowers to take advantage of lower longer term funding costs.” CBRE also noted that borrowers won’t even necessarily have to pay more for senior debt, since a 25-50 basis points rise in pricing is netted out by the fall in the 5-year swap rate since the vote. “It is easy to forget as well that in this sustained lower interest rate environment overall borrowing costs remain at historical lows.”

 

While the Brexit vote initially knocked consumer sentiment, confidence has bounced back this month, Bloomberg’s Fergal O’Brien reported. “A consumer sentiment index by YouGov and the CEBR rose the most in more than three years in August, rebounding from a three-year low in July.” “For all the talk of doom and gloom—both in the months leading up to the referendum and in the days following it—most consumers have yet to feel much tangible impact of the vote,” said Stephen Harmston, head of reports at YouGov. “It’s clear that the panic that gripped the public in the immediate aftermath of the referendum has subsided as institutions like the Bank of England take decisive action and the result becomes a part of life.”

The Retail Experience Reinvented Through Placemaking

In today’s times, retail consumers have been significantly adapting to purchasing goods online, causing shopping center owners to seek out ways to reinvent their properties as leisure and entertainment destinations by curating their collections of tenants to include services that cannot be provided online, according to CBRE.  To attract and retain such customers, both retailers and landlords are adopting “placemaking.” This is being completed by developing engaging and dynamic environments which can create and inspire a sense of place or community. CBRE’s latest Viewpoint Report indicated that over the past five years, businesses offering personal services, such as restaurants, salons and fitness clubs, have accounted for 9 percent of retail space leased in Florida, up from 7 percent during the prior five-year period. The report also highlighted that these transformations coincide with an increase in consumer spending on personal services nationally, both in absolute terms and as a percentage of total consumption.

 

Florida’s consumer economy has been expanding rapidly because of population growth and tourism. CBRE’s report highlighted that this trend is expected to continue and to drive development of new and creative retail space. According to the report, between 2010 and 2015, annual United States personal consumption expenditures on services increased by 21 percent, or $5.8 trillion, to $33.2 trillion. The growth in services spending represents a huge opportunity for Florida landlords and retailers as Floridians are expected to spend nearly 14 percent of their consumption expenditures on food and entertainment in 2016, nearly twice the national rate, noted CBRE. The report also notes that in 2016, Floridians are projected to spend nearly 14 percent of their consumption expenditures on the category, nearly twice the rate nationally.

 

Placemaking has been embraced in such environments by being able to offer the customer in person experiences that they can only benefit from by visiting. The report indicates that Enhancing dining or shopping experiences with new technology is a critical component. It also reveals that developing convenience and multiple levels of engagement through smartphone applications help retailers attract customers, particularly Millennials. According to CBRE’s report, Florida is keeping up with the trend nationally. Projects such as One Daytona, the Aventura Mall, and the Sawgrass Mills outlet mall are property renovations that are setting the pace at shopping centers across Florida which enhances the customer experience.

 

According to CBRE, Florida had received more than 106 million visitors in 2015 and a record-breaking 29.8 million tourists in the first quarter of 2016. The state is home to the third-largest workforce in the country, having seen 71 consecutive months of job growth with a June employment increase of 3.0 percent year-over-year. CBRE’s Viewpoint report also indicates that unemployment for the state stood at 4.7 percent,, a 60 bps improvement year-over-year and 20 bps ahead of the national rate. Florida’s real gross domestic product increased 3.4 percent between Q4 2014 and Q4 2015, putting the state in a tie with Utah for third place (behind California and Oregon) and well ahead of the national growth rate of 2 percent noted CBRE.

The Spread of Zika’s Effect on Real Estate

 

“The mosquito population in South Florida is larger than it is in many other communities in the country,” Josh Earnest said earlier last month in a White House press briefing. The Zika virus has spread to Miami Beach. Newly confirmed cases in the areas of Zika have recently been announced by Governor Rick Scott. With the spread of Zika the real estate industry in and tourism could have a negative effect for Miami Beach.

 

In the state of Florida, over a dozen cases of Zika have now been transmitted by mosquitoes locally born to the Miami area. Currently, there are 36 confirmed cases of Zika. The Zika virus has been a concern especially to pregnant women, which can cause cause birth defects such as microcephaly. Health officials had announced this year that they had cleared 17 blocks in the Wynwood area as “Zika-free.” Governor Rick Scott stated that the Florida Department of Economic Opportunity had contacted 55 Wynwood businesses in which losses would be recovered for the loss of tourists and customers visiting the area.

 

CDC director Dr. Thomas Frieden had concerns that the Miami mosquitoes could also be resistant. Chalmers Vasquez, Miami-Dade County’s mosquito control manager stated that the testing has so far shown the use of pyrethrin in ground foggers to be effective. The county will continue testing and also plans on rotating insecticides and larvicides to keep mosquitoes from building up a tolerance, Frieden said. Josh Earnest also stated that the region’s experience in fighting the mosquito insects will help efforts to prevent the further spread of the virus. Florida had 338 travel-related cases of Zika at its most recent count, however as many as 15 locally transmitted instances were directly reported with 13 in Miami and two in Broward County.

 

Will the latest discovery of mosquitoes carrying the Zika virus cause businesses to temporarily close? Will the Zika virus deter both tourists and locals from visiting the Miami areas and beynd? The Property Tax Appeal Group, which provides expert and professional real estate ad valorem appeals on tax assessments in South Florida released a new report which warns that if Zika virus fears continue over the long term, it could cause businesses to close, which could then depress real estate values nearby. The report also urges the Miami-Dade County Property Tax Appraiser to take this in consideration when conducting its property assessments in affected and surrounding areas.