Mid Summer 2016 Commercial Real Estate Update
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Discerning Solid Demand Drivers from Fads in Commercial Real Estate
As economic data suggest the US macro economy is just slowly growing, 1.2% annualized GDP growth for the second quarter of 2016 as a prime example, it is worthy to question the source of sustained demand growth for commercial real estate. Overall, commercial real estate prices are at or near all-time highs according to Real Capital Analytics and occupancies are generally near normal peaks. Thus, it is anticipated that many investors and market participants will begin or have begun to question where commercial real estate is in the proverbial “cycle” and if some form of a downturn is probable for the future. While it is difficult to forecast the future, determining whether present property fundamentals and pricing is a result of solid demand drivers or just potentially fleeting “fads” is highly worthwhile and more important for long-term investment decisions.
Demographic Waves Driving Commercial Real Estate Demand
In real estate, demand trends are ultimately governed by demographics. There are two major demographic waves that will persist for years to come. First, the rising of the Millennials and second, the aging of the population (also known as the Baby Boomer bust). While this is hardly a new topic of conversation in the real estate industry, some of its most primary implications to core demand seem lost during said “cycle” discussions. To illustrate why these discussions must be merged, a simple snapshot of 30-year-olds in America is presented courtesy of data from the US Census Bureau…