The medical office and industrial sectors will drive what is expected to be moderate growth in the commercial real estate market this year, predict the real estate advisory teams of Transwestern and Devencore located in 43 U.S. and Canadian metros.
The biggest potential impediments to that growth could be rising build-out costs and regulations on how medical tenants can use space.
The survey (which can be downloaded from here) finds that conditions for the U.S. office market, while expected to improve, might still be down slightly from the previous year’s outlook. The Northeast, Mid-Atlantic, and West regions are expected to exhibit the strongest office demand. Two fifths of the survey’s respondents expect overall leasing velocity and tenant prospects to be flat this year, as tenants require more time to finalize their decisions.
Brokers and analysts are concerned about ebbing consumer confidence, given the upcoming elections and uncertain economy. Optimists, though, anticipate pockets of demand from tech and medical tenants. Brokers also expect tenant densification (measured by leased space per employee) to continue but at a decelerating pace from last year.
“Tenants are getting creative with space efficiency, with many opting to densify space in order to upgrade quality,” the survey observes.
Flat to slightly better conditions could prevail in most markets this year. Charts: Transwestern and Devencore
This trend might explain why respondents expect development pipelines to be only flat or slightly higher this year, with some markets showing signs of oversupply and rising construction costs. However, tenant leasing will remain intensely competitive, with concession packages staying at least even with 2019 or a bit higher, according to 81% of survey respondents.
About the same percentage think investment interest and pricing will be flat or rise slightly in 2020, and nearly three-fifths (56%) foresee flat capitalization.
The survey also looks at the markets for medical offices, industrial, and Canada’s office market. Its findings include the following:
•The medical office sector will “handsomely” outperform in 2020, with leasing activity, tenant walk throughs, asking rents and development all expected to be higher this year.
•Half of the respondents expect conditions for industrial to be healthy, albeit with slight deceleration in leasing velocity. And while brokers see some overbuilding occurring in markets like Houston and Dallas-Fort Worth, “generally, low supply, coupled with high demand from ecommerce, is forecasted to drive the market.”
•With the exception of Alberta, Canada’s major provinces—Ontario, British Columbia, and Quebec—should see leasing velocity and tenant prospects pick up this year. However, tenants are now taking anywhere from seven to 12 months to sign midsized deals.
Related Stories
Market Data | Sep 17, 2018
ABC’s Construction Backlog Indicator hits a new high in second quarter of 2018
Backlog is up 12.2% from the first quarter and 14% compared to the same time last year.
Market Data | Sep 12, 2018
Construction material prices fall in August
Softwood lumber prices plummeted 9.6% in August yet are up 5% on a yearly basis (down from a 19.5% increase year-over-year in July).
Market Data | Sep 7, 2018
Safety risks in commercial construction industry exacerbated by workforce shortages
The report revealed 88% of contractors expect to feel at least a moderate impact from the workforce shortages in the next three years.
Market Data | Sep 5, 2018
Public nonresidential construction up in July
Private nonresidential spending fell 1% in July, while public nonresidential spending expanded 0.7%.
Market Data | Aug 30, 2018
Construction in ASEAN region to grow by over 6% annually over next five years
Although there are disparities in the pace of growth in construction output among the ASEAN member states, the region’s construction industry as a whole will grow by 6.1% on an annual average basis in the next five years.
Market Data | Aug 22, 2018
July architecture firm billings remain positive despite growth slowing
Architecture firms located in the South remain especially strong.
Market Data | Aug 15, 2018
National asking rents for office space rise again
The rise in rental rates marks the 21st consecutive quarterly increase.
Market Data | Aug 13, 2018
First Half 2018 commercial and multifamily construction starts show mixed performance across top metropolitan areas
Gains reported in five of the top ten markets.
Market Data | Aug 10, 2018
Construction material prices inch down in July
Nonresidential construction input prices increased fell 0.3% in July but are up 9.6% year over year.