Market Watch: The Top Commercial Real Estate Trends for 2018

With the ups-and-downs of today's crazy economic and political climate, real estate can be complicated, to say the least. As this rapidly changing environment continues to affect the market, look to these commercial real estate trends to point you in the right direction:

Interest Rates

The benchmark lending rate rose in December by 1/4 point, to 1.25 to 1.5 percent. Three hikes for 2018 are projected, with the federal funds rate forecasted for 2.1 percent by the end of the year, and a rate of 2.7 percent projected for 2019. Despite these forecasts, the 10-year Treasury rate has remained stable, indicating the market is not so sure of these rate hikes, and looking to inflation as an indicator of their propensity.

Until then, the cost of borrowing and property values should remain stable. However, absent rate hikes, a bubble risk remains, as does the potential for economic stagnation hindering sales.

Retail and Industrial

2017 was an astoundingly terrible year for retail. Store closings more than tripled, with over 600 bankruptcies reported in the retail sector alone, including heavy hitters like Sears/Kmart, JCP, Macy's, ToysRUs, and HHGregg. Retail closings are expected to jump at least 33 percent this year, with more closings already announced. Even Walmart/Sam's is closing stores.

E-commerce is having an effect on commercial real estate, causing these spaces to shift to industrial—warehouses and distribution centers, where giants like Amazon will play a role. Industrial properties will be in high-demand in 2018, outperforming other commercial segments.

Foreign Lending

Changing U.S. tax laws could have a negative effect on U.S. and foreign banks that do business, particularly in the commercial real estate lending arena. The implementation and repercussions of BEAT, legislation intended to keep profits at home rather than losing them to countries with lower tax rates, are also unclear, and may affect multinational lenders.

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