Brokers look forward to a commercial real estate market that mirrors 2018’s solid results

Commercial real estate brokers are optimistic about their industry’s growth prospects for 2019, according to a poll of brokers that Transwestern released last month. They are buoyed by strong consumer and business confidence, steady employment growth, and the anticipation of available debt and equity liquidity.

The survey explored the sentiments of brokerage professionals about three sectors: offices, medical offices, and industrial.

Over half of the 107 respondents, 52%, believe that leasing velocity, tenant walk throughs, and asking rents in the U.S. office market will be slightly to significantly higher in 2019. These factors will be driven primarily by continued economic expansion, lease expirations coming due, and rising interest rates.

Amenities continue to spur tenant interest, with access to transportation/parking and reliable WiFi service leading the “very important” list.

More than three quarters of respondents expect development levels to be flat or slightly higher in 2019, with select markets showing concern of oversupply and rising construction costs.

Most brokers foresee flat to modest growth for office pricing, investor interest and cap rates. Image: Transwestern

Nine of 10 respondents expect asking rents for medical offices to be slightly higher in 2019, driven by leasing activity. Demand is being driven by a growing and aging population. Cap rates in the medical office sector will be flat compared to 2018, predict 80% of respondents, with most also expecting investor interest to rise over the year.

While the average index of 122.1 for the industrial sector’s prospects next year was down from 130.9 for last year’s outlook, respondents still expect tenant walk throughs, asking rents, and development to be higher for this sector, driven by ecommerce, a growing population demanding consumer goods, and better economic conditions.

Seventy-two percent of respondents expect higher investment interest in 2019, as the industrial market strengthens and select REITs shift focus away from office to industrial properties, especially in the Northeast and Mid-Atlantic regions.

Brokers expect an uptick next year, particularly in asking rents and tenant prospects, for the industrial sector. Image: Transwestern