Major Happenings in CRE During 2018
2018 was a year of transition in the commercial real estate world and this sector is still on its current Bull Run. There are a number of factors that have contributed in shaping the commercial real estate industry in 2018. These factors are both external, like the political environment, and internal, such as the pending liquidation of major retailers. Below are some of the major happenings that took place last year.
1. Amazon’s Headquarters & Center of Excellence
After months of speculation, pitch meetings and Cities toppling over each other to win the tech giant’s favor, Amazon finally settled on Northern Virginia and New York City as its choice for new headquarters in a $5 billion investment move that will create more than 50,000 jobs across the two locations.
The company also chose Nashville, Tennessee as the site for its new Center of Excellence which will further create an additional 5,000 jobs. The center will be responsible for Amazon’s transportation, supply chain activities and customer fulfillment.
2. Tax Breaks
The passage of the Tax Cuts and Jobs Act at the end of 2017 provided an investment avenue for commercial real estate players. The investment vehicle is in form of Opportunity Zones designated by state governors as areas for investment that could benefit local communities. The 8,700 designated Opportunity Zones nationwide offer real estate investors attractive tax breaks, including reduced or deferred capital gains taxes. The only rider is that the investors must be willing to keep their money tied in for the long-term.
Market experts however warn investors keen on Opportunity Zones that there’s no guarantee that local property values will, in fact, go up. They recommend considering specific neighborhoods and properties carefully, making sure they show a good probability of a return on investment.
3. Potential Liquidation of Sears Holdings Corp
2018’s most striking bankruptcy statement came in October, when Sears Holdings Corp. filed for the much expected Chapter 11 reorganization. Sears Chairman Eddie Lampert is currently awaiting bankers’ decision on a $1 billion loan that he plans to use to save the department stores chain. Odds however seem stacked in favor of eventual liquidation.
4. Developments in the Multifamily Sector
The multifamily remains solid albeit with small cracks beginning to show in select markets. Even though vacancies have increased slightly, landlords still find themselves having to offer rent concessions on newly built properties across the country. Things are however brighter for investors with class-B and class-C apartment buildings as the U.S. continues to face a shortage of workforce housing.
5. Popularity of Industrial Real Estate
This year also saw Industrial real estate emerge as investors’ most preferred commercial asset. This is even as e-commerce growth continued to drive demand for warehouse and distribution properties across the country. The need for space has been so significant; many older properties in urban infill markets are being reconsidered for industrial conversions. Cap rates on industrial assets have moved down, raising concerns that the sector may be becoming over-heated. Not to worry though, brokers believe the sector can still run on high for another two or three years.
6. Recent CREW Report
A report by Commercial Real Estate Women Network (CREW) confirmed that women in commercial real estate are still getting paid less than men do for doing the same jobs. An exclusive NREI survey conducted this spring concurred with the CREW report. The discrepancy in salaries starts at mid-level positions and continues once women reach executive ranks painting an image of the sector as “good ole’ boys’ club.