2016 looks like it will be quite a ride. Here is a look at domestic demand, stock market volatility, foreign investment, urban markets and interest rates.
1.Net Leased Demand from Domestic Investors Remains Strong
The net leased market is facing very limited supply of quality assets and an overwhelming demand. More than ever investors are looking to net leased assets as a way to put their capital to work with less perceived risk than other investment options. Several proposals to eliminate 1031 exchanges have been put forth by the Obama administration and it remains to be seen if 2016 will see this controversial legislation go through.
2. Stock Market Volatility is the New Normal
Uncertainty quickly leads to fear which is the current theme in today’s stock market. Instability in China coupled with rock bottom crude oil prices are causing historic dips in the market.
3. Foreign Investors Enjoy More Favorable Tax Laws
President Obama recently signed into law a provision that waives taxes imposed under the 1980 Foreign Investment in Real Property Tax Act. Foreign pension funds, historically one of the largest investors in commercial real estate, now have their eye on the US.
4. Population Growth is Shifting to Urban Areas
Growth in major cities continues to far outpace suburban and rural population growth. The millennials are increasingly drawn to urban areas for both the availability of jobs and the cultural centers.
5. Interest Rates Are Anyone’s Guess
While the FED has hinted at several modest rate increases throughout 2016, it seems those increases are becoming less certain. Some have even raised the question of negative interest rates as a possibility. Any substantial rate increase would have an impact on commercial real estate but that doesn’t seem to be on the table.