What’s happening in commercial real estate in 2017?

We’ve broken into the new year rising on a whole new wave of optimism and confidence. This is helping the economy in general, but especially applies to commercial real estate. This bullish sentiment along with billions in new infrastructure investment are certainly likely to turn around any doubts about the direction of the market we may have been encountering last year. Expectations are that 2017 will be a strong year of growth, with both prices and transaction activity at healthy levels in most areas.

Interest Rates
If one thing is for sure this year it is that interest rates are likely to be raised by the fed. Expect at least two hikes, if not more. This may be both good and challenging for the market. It may be worse for REITs, but good for direct investors who are looking for lenders to become more aggressive in 2017.

The Affordability Gap
Higher rates and prices are likely force a further widening in the affordability gap. In NYC we’ve got new sales price and rent records being set in Williamsburg. The is also creating a domino effect which is creeping south and pushing up prices in edgier neighborhoods, which may be next in line for gentrification and becoming trendy destinations. Meanwhile De Blasio, Cuomo, and other lawmakers are haggling over bringing back 421a. Debates are raging over whether the tax breaks and incentives designed to spur another 2,500 affordable units in greater NYC should also include larger condo units.

Maturing Debt & Mortgage Deadlines
$90B in commercial mortgages are coming due soon. Analysts expect 13% to 50% will have trouble refinancing. There is a lot of capital out there, though some could be additionally challenged by recent business trends and higher rates. Thankfully interest in acquisitions and redevelopment could help soak up a lot of these properties quickly.

Current trends indicate a lot of opportunity in the market. It is important to buy right, but with another 4 strong years of real estate growth expected, those holding out for steals, and who are still looking at old data could be missing out on a lot of great opportunities and gains.
What will you invest in this year?

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