Economic and CRE Cycles Diverge:
Ten-X research team has been closely monitoring the changes happening in the economic and the commercial Property cycles. Since the labour market continues to grow very strongly, the economic cycle has shown no signs of fading away. The residential sector has started to pick up while the commercial sector is still showing signs of struggle. Some markets are seeing low demand and the others showing large supply additions rising to match their absorption levels. After the introduction of e-commerce, the industrial sector has picked up very well and experiencing a steady growth throughout the country. The hospitality sector has also shown signs of improvement in various states in the recent past. On the whole, the year 2018 will be a year of expansion for the real estate sector.
Mind the Gap Closing:
In our 2017 wrap-up, the fact that there wasn’t a clear match between the expectations of buyers and the sellers was a key to the failure of business in certain areas. The result was just a sharp decline in business. We believe in year 2018, this ‘gap’ will slowly close, and it will do so due to sellers accepting the new paradigm. The lack of appreciation over the past year will definitely annoy businessmen in the coming quarters.
Death and Taxes:
The effect of this will start taking place in 2018. Tax reforms will be on the top of the list as the final details and harmonization between the House and Senate versions are left to get sorted out.In long-term, should the Local and State Taxes Deduction turn out to be removed or severely curbed, regional migration out of high tax states to lower tax sun-belt states may accelerate further, driving even more regional economic divergences than have been seen in this cycle.
Meet the New Boss, Same as the Old Boss:
Early in 2018 Janet Yallen will be paving way to Jerome Powell as the Chair of the Federal Reserve. However, despite the transition in leadership, the monetary policy will remain unchanged. His comments point to a similar outlook on the economy as Yellen, with perhaps a slightly higher emphasis on labor force participation rates, which should result in the continuation of gradual interest rate increases and very slow balance sheet unwind. The only place where he may deviate from his antecedent will be the regulatory front, where he is likely to be laxer towards the financial sector.
Dig Baby Dig:
There are talks going on about the massive infrastructure spending bill being discussed after the tax reforms are taken care of. However, based on the fact that a large portion of this is centred on a border, a stiff resistance is expected from the democrats and Republicans.
E-Retail Rise Continues:
As we had mentioned earlier, 2017 was the year when we finally to shifted to e-commerce, years after Ten-X Research highlighted the trend. In fact, we believed that e-commerce will take over retail businesses such as groceries, eateries etc. In fact, Amazon has recently added Whole Foods to the list.
One of the advantages of e-commerce is the increasing pace at which the retail industries are growing. The year 2018 will be a better year for the commercial segment also.
Home is Where the Heat Is:
The residential segment is expected to pick up in the year 2018 and the demand for houses will definitely increase due to the changes in policies. The prices of flats are expected to increase as the demand will keep increasing in the near future. The multifamily construction boom is beginning to fade, and it seems that single family is all set to take the baton.
But Location Still Matters:
One of the provisions in the proposed GOP tax plan is a cap on mortgage interest deductions over $500,000. This will influence the market performance greatly, as California, New York, DC, Boston and other higher priced home metros will be disproportionately affected and constrained by the cap.
Puerto Rican Migration:
The impact of Hurricane Maria on Puerto Rico was terrible and continued to be felt to this day. Due to that, a large portion of Puerto Ricans migrated from the island to the mainland, accelerating a trend that has been in place for several years. This will severely affect the economic recovery potential of Puerto Rico but will also be a boon to places such as Orlando and central Florida that have seen a large influx from this population. The Buy commercial land will thrive in future due to this as it benefits greatly from the proposed pass-through entity tax treatment and could trigger an influx of capital into the sector.