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CRE Looking for Signals from Oil, Overseas and Retail, Oh My

23 Feb 2017

Forces near and far are raising eyebrows in the commercial real estate industry as we attempt to predict how CRE will fare in 2017. Three of those “forces” have been making headlines recently – foreign investors, oil prices and department stores.

Regarding foreign investors, National Real Estate Investor says more hurdles are ahead. Reporter Beth Mattson-Teig writes that “foreign investors have both the capital and the desire to continue buying U.S. real estate. The question is whether those forces will be strong enough to offset looming challenges ahead in the form of higher interest rates and a maturing real estate cycle, as well as a shifting geopolitical and regulatory environment.”


This prognosis comes on the heels of a difficult 2016, in which cross-border transaction volume dropped by one-third over the previous year’s record high $98.9 billion However, cross-border investment accounted for a bigger percentage of the total volume in 2016 at 13.4 percent as compared to 11.5 percent and 10.0 percent in 2013 and 2014, according to the article.


Looming big are regulatory changes underway in China. Teig writes that it “remains to be seen whether tighter controls that the Chinese government has put in place will restrict capital from Chinese investors.”


The oil industry also is a concern. After oil prices plummeted to a 12-year low in early 2016, thousands of jobs in the U.S. – and particularly Texas – were slashed. That hurt all aspects of real estate – residential, office and industrial. Even hotel space.


One economist told National Real Estate Investor that “the declines in energy prices and jobs has had a major impact on hotel stays and the oil-related financial sector in cities affected by massive layoffs, as well as industrial occupancy in some states with a heavy dependence on oil.”


The article noted that oil companies, in order to attract talent, will either move their headquarters or establish regional headquarters in cities attractive to millennials. That could bode well for Atlanta, which is a millennial hotspot.


The third “force” in today’s headlines is retail, especially department stores, those once-dependable anchor tenants in many malls that have watched foot traffic decline and have been closing stores at a fast clip. That, in turn, caused regional mall real estate investment trusts to take a dive in 2016, according to UrbanLand magazine, “with regional mall REITs posting total yearly returns of –5.2 percent.”


It also has put massive amounts of retail real estate in play. But there is one potential bright spot: A contributor on writes that “despite the many longstanding retailers committing to shutter many or all of their brick-and-mortar storefronts, the death of the traditional retail storefront is overblown” as physical locations are “quietly evolving through the integration of digital innovations.”