Slow and Steady Growth for Office Real Estate Sector Forecast

Following one of the longest economic expansions in U.S. history, Colliers International economists forecast 2017 was the year of the market’s peak. There are several factors that indicate the cycle’s best years are in the past, Colliers International Chief Economist Andrew Nelson wrote in the company’s 2018 Outlook report, including slowing deal volume, eight consecutive months of declining commercial property prices, plateaued cap rates, a widening divide between seller asking prices and buyer bids and investors going in search of riskier assets for better returns.

Though the cycle is getting long in the tooth, the industry is expected to continue riding the waves of the strong economy to steady growth, albeit at a more moderate pace than years past.  “We’re not ready to pronounce an end to this economic expansion, which has been so good to the property sector. Although getting on in years — the expansion has been going on for over 100 months, and by mid-2018 will be the second longest in U.S. history,” Nelson wrote. “Courtesy of the strengthening global economy, likely tax cut stimulus from Washington and other positive influence, the economy is getting new life.” Here is the forecast for the office, multifamily, industrial and retail sectors this year, according to Colliers International.

Slow and steady growth is expected in office markets. Job growth, though slightly down from its 2015 peak, remains robust. Employers added 175,000 jobs on average per month in 2017, compared to 2015’s 250,000. Still, the sector will experience a balancing act of sorts as new supply levels converge with occupancy rates and asking rents. Vacancy rates nationwide have been stagnant for the past two years, standing relatively at the same rate, Colliers reports. The same can be said for rents the past several quarters. In addition, suburban office markets are expected to continue to outperform downtown centers thanks to several years of positive absorption and vacancy rates that hovered near pre-recession lows as of 2017.