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Mortgage Bankers Association predicts reduced CRE returns in 2018

On Behalf of | Jun 21, 2018 | Commercial Real Estate |

Commercial real estate investors in California and around the country should not expect returns in 2018 to be as robust as they have been in recent years according to a report from the Mortgage Bankers Association released on June 12. The trade group believes that the combined effects of a multi-year building boom, slowing economic growth and rising interest rates will likely impact returns for the next five years. The MBA says that commercial property returns in recent years were boosted by supply shortages that have now been addressed.

However, the MBA report did contain some positive news for commercial real estate investors and developers. The organization says that many investors will enjoy significantly higher after-tax yields under the provisions of the 2017 Tax Cuts and Jobs Act. The report also suggests that commercial property market fundamentals such as vacancy rates and rent growth will remain strong in the years ahead despite more sluggish economic growth.

The retail sector remains an area of particular concern for the MBA. Retail property values inched up by just 2.3 percent in 2017 according to the trade group. The prices of all types of commercial real estate in the United States rose by 7.6 percent during the same period. The MBA blames this partly on negative perceptions about the future of brick-and-mortar retailing, which, the group believes, has prompted many investors to flee the sector and seek out opportunities in industrial properties instead.

Commercial real estate is highly regulated, and it can be difficult for developers to adjust their plans in light of changing market conditions. Attorneys with experience in this area may be familiar with these regulatory hurdles and help developers to ensure that their applications and proposals meet zoning, environmental and land use restrictions. This experience may be particularly useful to commercial real estate owners who wish to put vacant properties, such as big-box retail locations, to more productive use.