Solid fundamentals continue to support commercial real estate market
Our chart of the week focuses on the attractiveness of commercial real estate investments amid sound fundamentals and slowing CRE price growth.
November 22, 2019 | 2 minute read
U.S. commercial real estate (CRE) price growth has gradually decelerated in recent years along with the economic expansion. Despite the price growth slowdown, the fundamental backdrop supporting CRE has been sound.
CRE prices have continued to rise this year, for example, though at a slower pace than in recent years while cap rates have generally treaded water. Meanwhile, three Fed rate cuts have helped keep 10-year yields anchored near their historic lows and made the income offered by CRE debt increasingly attractive to investors.
A cloudy macro environment could bring heightened volatility in 2020, yet CRE fundamentals remain steady.
In its 2020 Real Estate Market Outlook, CBRE forecasts transaction volume to remain at or near the $500 billion mark in 2020.1 As the chart highlights, this would place it approximately where it has been since 2018. CBRE further projects continued moderation in property price growth, but predicts income returns will remain steady.
As investors look ahead to the multiple potential drivers of volatility next year – whether driven by interest rates, trade or election uncertainty – investor interest in CRE could again be buoyed by slow but steady U.S. economic growth coupled with investors’ continued search for yield amid a lower-for-longer rate environment.