NREI had the opportunity to talk to Ruchard Barkham, Ph.D., executive director and global chief economist at commercial real estate service firm from CBRE to discuss the United Stated Commercial Real Estate Market in 2016.
Richard believed that the Fed will raise interest rates in December. He expects to see them gradually rising over the next three years. Barkham does not, however, believe that this will greatly impact commercial real estate. “The rates will be low and measured” Barkham says. “We have had low rates for seven years. There might be some volatility around the stock market, but the key drivers in real estate markets are GDP growth and confidence, and they are still pretty high at the moment. There is a reasonably good recovery in North America and Europe, and that is quite a big portion of the global economy.”
Richard Barkham states that he is confident that the commercial real estate industry will continue to see a steady improvement.
When it comes to investment sales, Barkham thinks that investors will adjust their expectations and lower yeilds. This is due to the fact that there is so much capital to invest and yeilds have come down but there are still very good spreads over bond rates. Although, he does predict two potential problems. The first being, that plenty of the investment demand or global savings has come from oil-producing counties. “There could be some withdrawal of oil money from global investment because of the falling oil price.” The other potential issue is that he sees more on “the confidence side” Everyone is very optomistic about the economy, but Barkham states that there has been plently of dollar borrowing in emerging markets. Some of those countries do not have the foreign currency reserves to repay some of the money that they owe. This could all play a part in huring the confidence.
Richard Barkham thinks that some of the issues to look out for in commercial real estate in 2016 are in the labor market and wage growth which could cause inflation. He also believes there is potentially some defaults in the energy sector that might bring about some issues.
Overall, Barkham suggests that everything is looking good for the 2016 commercial real estate market. Although, he is being cautious, he predicts that it will be another good year for commercial real estate.
For more on NREI’s interview with Richard Barkham, click here!