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 | Mar 22, 2017
After a strong year, construction industry anxious about Washington’s proposed policy shifts
Impacts on labor and materials costs at issue, according to latest JLL report.
Market Data | Mar 22, 2017
Architecture Billings Index rebounds into positive territory
Business conditions projected to solidify moving into the spring and summer.
Market Data | Mar 15, 2017
ABC's Construction Backlog Indicator fell to end 2016
Contractors in each segment surveyed all saw lower backlog during the fourth quarter, with firms in the heavy industrial segment experiencing the largest drop.
Market Data | Feb 28, 2017
Leopardo’s 2017 Construction Economics Report shows year-over-year construction spending increase of 4.2%
The pace of growth was slower than in 2015, however.
Market Data | Feb 23, 2017
Entering 2017, architecture billings slip modestly
Despite minor slowdown in overall billings, commercial/ industrial and institutional sectors post strongest gains in over 12 months.
Market Data | Feb 16, 2017
How does your hospital stack up? Grumman/Butkus Associates 2016 Hospital Benchmarking Survey
Report examines electricity, fossil fuel, water/sewer, and carbon footprint.
Market Data | Feb 1, 2017
Nonresidential spending falters slightly to end 2016
Nonresidential spending decreased from $713.1 billion in November to $708.2 billion in December.
Market Data | Jan 31, 2017
AIA foresees nonres building spending increasing, but at a slower pace than in 2016
Expects another double-digit growth year for office construction, but a more modest uptick for health-related building.
High-rise Construction | Jan 23, 2017
Growth spurt: A record-breaking 128 buildings of 200 meters or taller were completed in 2016
This marks the third consecutive record-breaking year for building completions over 200 meters.
Market Data | Jan 18, 2017
Fraud and risk incidents on the rise for construction, engineering, and infrastructure businesses
Seven of the 10 executives in the sector surveyed in the report said their company fell victim to fraud in the past year.