Real Estate Outlook Is A Mixed Bag For 2018
Real estate markets will have varied levels of success and some struggles in 2018, depending on property type, location and shifting demands, according to Richard Green, director of the USC Lusk Center for Real Estate.
“On the [residential] rental side, we think there will be some gains in rents this year, but they will be muted compared to years past,” Green said. “The reason for that is the vacancy rates are still very low despite the fact that there is a fair amount of stuff coming online.”
Over the last several months, Green noted that overall rental rates in Southern California have fallen slightly, but that trend depends greatly on location. In areas such as Orange County, where inventory is low and new development is scarce, Green said he expects rental rates to continue to climb. However, in pockets of Los Angeles County, where development has increased greatly in the past several years, he expects rates to begin to soften or at least flatten out.
Green explained that it is unlikely for values of single-family homes and condominiums to keep rising. Home prices have surpassed affordability for the average Californian, causing more residents to rent. While home prices increased up to 7% last year, Green said he does not expect to see more than 2% growth in 2018.
“I think [commercial real estate] will be a lot like it has been in the last few years. We expect the industrial [market] to do very well. They just can’t build it fast enough and that reflects how the economy more broadly is changing,” Green said. “Retail I expect to continue to struggle. Office depends very much on location and type.”
The outlook for traditional office space is “ugly,” according to Green, with more and more businesses seeking alternative, creative space to conduct business. He explained that 15 years ago, the average U.S. employee occupied around 230 square feet, but today that number has dropped to around 160 square feet and is expected to continue decrease. Further exacerbating the problem is that job growth has not been enough to offset the decreased need for space, Green said, noting that automation is replacing people in many instances.
A shrinking middle class and a decrease in disposable income – as well as the popularity of Internet retailers like Amazon – has resulted in many stores, such as Sears and Kmart, to begin shuttering locations. Green explained that high- and low-end stores are surviving because those markets are increasing in population as the middle class dissolves.
“Beyond the fact that incomes in the middle haven’t risen, they are spending more of their income on housing, more of their income on health care and, with this new tax bill, the middle class is ultimately going to be spending more in taxes,” Green said. “That means there just isn’t money there to support these stores. People just don’t have money, and retail spending is about money.”
Editor's note: The following are guest perspectives by industry executives on the outlook for real estate in 2018.
The original article can be found here.