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Monday, January 21, 2019

Commercial Real Estate 2019: Opportunities abound amidst strong demand, anticipated repricing and strategic change


By Mark E. Rose (Toronto)

Set against the backdrop of a rapidly increasing world population, global GDP growth, relatively strong economies and heightened job creation, real estate markets are thriving. Fundamentals continue to show great strength amidst restrained building activity, strong demand and accordant rising rents. Despite political headwinds such as trade disputes, Brexit, currency fluctuations and interest-rate hikes, quality real estate continues to be occupied and in demand.

These are some of the key trends noted in Avison Young’s 2019 North America, Europe and Asia Commercial Real Estate Forecast, released last week. The annual report covers the office, retail, industrial and investment sectors in 68 markets within seven countries on three continents.

Click here to view Avison Young’s 2019 North America, Europe and Asia Forecast, FULL REPORT:

Click here to view Avison Young CEO Mark Rose’s 2019 Commercial Real Estate Forecast VIDEOCAST

While the last few weeks have certainly been a rollercoaster ride for the world’s equity markets, the headline is: we continue to feel very positive about opportunities in the real estate environment for the year ahead. At Avison Young, we believe that more capital is available to move into real estate debt and equity than at any other time. The next wave of investment is not a matter of if or when – it’s just a matter of price.

Understanding demand is the key to navigating the current market. While workplace changes can be confusing – driven by technology, generational trends and the new economy – they largely represent positive developments for our industry. As co-working and flexible-office providers take down a significant amount of space, what we are seeing is a change in tenancy – not a slowdown in occupancy. Leasing is stable – and longer-term in nature – and most businesses retain their office footprint throughout economic cycles.

An office experience is taking the place of the static workplace of prior generations, states the report. Energy, light, collaboration, purpose, sustainability, and health and wellness are as much drivers of the work experience as the underlying businesses.

Industrial is today’s property class of choice and will probably regress to the mean, but will still be a driving force as methods of production and distribution continue to evolve. Distribution to the home and the last mile are top of mind among industrial owners and occupiers; accordingly, same-day delivery is the goal of retailers and consumers as the world’s population continues to increase.

On the investment side, as pundits have noted, we are at a pricing top and have been there for a few years. Rising interest rates should be pushing cap rates up and prices down, but demand for real estate and longer-term views on a potential global recession are working to keep pricing within a narrow band. The real estate industry has matured: buyers hold more equity and are generally not chasing deals. This situation has created a tug-of-war between the bid and the ask, and sets up a modest – but healthy – pricing correction even as economic growth takes hold and interest rates rise globally.

On the North American front, though trade was discussed ad nauseam, property markets in the U.S., Mexico and Canada performed well in 2018. The Mexican economy has continued to exhibit resilience in a complex environment despite the volatility and uncertainty surrounding the federal-government-transition process in Mexico and other international factors. 

Across the Atlantic, despite a healthy property sector, the U.K. market remains susceptible to political risk – namely Brexit. German markets are exhibiting healthy leasing and investment demand, while a lack of product hinders stronger growth. Significant construction, industrial expansion and sustained prices are forecasted to have positive impacts in Bucharest, Romania.

Meanwhile, co-working office providers have become core occupiers in Seoul, South Korea – the location of Avison Young’s first office in Asia. 

(Mark E. Rose is Chair and CEO of Avison Young)

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