The dawn of another turn around the sun ushers in predictions for where the Commercial Real Estate market is headed in 2017. With the new year comes goals, insights, and of course, changes. We’ve compiled a few resources that showcase commercial news for 2017, so you don’t have to. As you reflect on 2016 and take a look at your bank or credit union’s goals for the future, spend some time evaluating these insights and forming your own 2017 predictions. Then, head to the bottom of this post for a bit of insight on where MountainSeed sees commercial real estate loans and commercial appraisals headed next year.
Cloud-based technology is coming our way
While it’s frowned upon to have your head in the clouds, having your work in the cloud is a different story. Experts say that CRE will see a shift to cloud-based computing in 2017. That means sharing information and collaborating on projects will be more efficient and more productive. With cloud-based computing, everyone will able to access commercial property information in real-time, and we may even see a switch to electronic signatures and other data.
The hotel sector will continue to boom
While hotel-room revenues and occupancy levels are plateauing, it is clear they have fully recovered from the financial crisis. The demand for hotel rooms continues to grow at an attractive rate, although trends have begun to slow as of late. Data from STR Inc. indicates that demand increased by 1.3 percent year to date as of August 2016, down slightly from the trailing 12-month average of 1.8 percent. Essentially, when hotels are full, there are no more rooms to sell. The newsworthy bit here for commercial real estate loans is that supply and demand will be maintained, and the outlook for the hotel sector is positive.
Commercial real estate properties will vary in size and shape, and bigger isn’t always better
CRE deals at the higher end — $2.5 million and above — comprised a large share of investment sales in 2016. Apartment transactions made up the largest share of volume, with $36.8 billion in sales, followed closely by office properties, which accounted for $33.9 billion. Retail and industrial sales totaled $18.4 billion and $14.2 billion, respectively. Office and retail volume were down on a yearly basis, while apartment, industrial, and hotel transactions posted positive yearly growth. All in all, prices for CRE properties accelerated, finishing with a 7.7% yearly advance in the third quarter of the year.
Smaller markets might remain small…but mighty
With strong tenant demand and a declining supply of availability, CRE in smaller markets will continue to rise in 2017. Job creation is expected to continue too, which helps stability. Experts say that while the global economy remains in trouble with high debt ratios, the general state of commercial real estate in the U.S. remains strong due to high multifamily starts and renters occupying quickly.
Exploring the Wild West is key
Predictions indicate that the hottest CRE markets will be in the West, and the region will continue to lead the nation in both prices and sales. With strong growth dynamics including high population and low unemployment rates, consumer confidence remains intact and even improves. The top 10 are forecasted to see average price gains of 5.8% and sales growth of 6.3%, exceeding next year’s anticipated national growth of 3.9% and 1.9%, respectively.
The disruption in CRE properties (and therefore commercial real estate loans) is a good thing
Shaking-up the CRE marketplace might mean shifts in traditional thinking. In 2017, we’ll see innovations in the use of spaces. There is likely to be greater demand for mixed-use developments as consumers prefer to “live, work, and play” in proximity; office space usage will be redefined and even rationalized. Further, demand for large retail and industrial spaces will contract, and there will be a blurring of lines between these two property types. For example, retail properties could double as fulfillment centers. This demand is only expected to continue to rise as Millennials enter the home-buying space.
Banks will continue to see positive trends in CRE
At MountainSeed, we continue to hear positive comments from our clients regarding commercial real estate activity as well as market fundamentals. Community and regional banks are underwriting credit and collateral based on the income of properties, their underlying businesses, and the strong economic environment. In addition to our clients sentiments, we continue to see steady commercial loan volume by way of appraisals in our system. To date, our clients have increased their loan volume by 10% YoY, spreading even into the typical seasonal slowdown around the holidays proving to be stronger than last year.
For these reasons, we’re excited to see where Commercial Real Estate is headed in 2017. If you want to join us for the ride, we’d love to talk with you more.