Expectations and market realities in real estate 2016

Analysis

Expectations and market realities in real estate 2016

Navigating through the crosscurrents

As 2016 gets underway, investors are facing a host of new questions, challenges and conflicting priorities. Will the commercial real estate market falter like the stock market? Will long-term interest rates start to increase and by how much if the Federal Reserve continues to raise rates this year? Do real estate prices and values have room to run, or are they at the end of the cycle? Given the difficult decisions ahead for investors as they steer through the uncertainties, we entitled this outlook report: Expectations & Market Realities in Real Estate 2016—Navigating Through The Crosscurrents.

This is the fifth year that Deloitte, the National Association of REALTORS® (NAR), and Situs RERC have partnered to publish this annual forecast report. Although the previous four years have not been easy to forecast, this year, the year 2016—given the recent slowdown in global economic growth (and especially in China), low oil prices, stock market volatility, and movement off a near-zero federal funds rate—has been the most challenging and chaotic.

A year ago, we forecasted that commercial real estate returns would perform relatively well for another 12 to 18 months. During the past year, price increases have surpassed 2007 peaks in some markets, per Real Capital Analytics. In addition, fundamentals have improved, and with income and appreciation components, commercial real estate total returns were 13.5 per-cent for 2015, according to the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index (NPI). As the year gets underway, there has been a definite slowdown in the velocity of commercial real estate sales volume, per Real Capital Analytics. We expect commercial real estate to take on more of a defensive role in this environment, and as values and prices begin to level off, investors will likely benefit from it being a hard asset, as well as from its strong income flow, especially if long-term interest rates and 10-year Treasury rates remain low, as expected. Download our report to find out what is ahead for 2016.

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