Friedman had the pleasure to be a sponsor at the 17th Annual CRE Forecast Conference at the Hyatt Regency in Chicago, IL last week. The event invites Commercial Real Estate talent from across the Midwest to join in collaborating on market challenges, discuss the latest industry trends and set the tone for the coming year. We’ve highlighted the three key takeaways from the event below.
Increasing Developer Risks
It’s no secret that new developments have been steady over the last decade. However, recently these developments have become more of a risk. Construction costs have begun to climb by roughly 7-8% over the last few years. This is due to the increased cost of Lumber and Steel as well as the lack of available labor in the area (which bodes well for existing assets). And with foreign investments down, mainly in China, developers are beginning to take speculative risks in order to create value.
Investments Are Changing
Today’s U.S. economy is amidst one of the longest growth cycles in years, leaving CRE investments in a great spot for growth in the coming years. As you may have heard, the recent volatility of the Stock Market has ultimately led to fixed real estate assets becoming more appealing to investors. Along with the positive outlook of the stock market, Capital Rates are also in a good position. Now coastal investors looking for more attractive cap rates have their eyes set on the Chicago area for their future investments as a result.
On the other hand, there are two big investment trends that are changing the way CRE investments are being done through the eyes of buyers and sellers, specifically:
- A growing trend in sellers selling off their assets and paying capital gains rather than utilizing a 1031 exchange, taking some major chips off the table.
- Buyers beginning to hold on to their cash as sellers still see their assets at all-time highs, creating a major strain on pricing.
Recent trends have investors betting big that Millennials will be settling down and raising their families in the downtown area. As development along the River is a popular topic for office buildings and multifamily facilities, it presents several issues that will impact CRE, specifically the traffic and the downtown school systems. Addressing the demand for transportation and ways to avoid congestion in the area are huge concerns, but without commitment to improve the downtown school system, it could easily reverse these trends.
Likewise, as millennials continue to move to these downtown areas, Suburban offices who don’t update their facilities to compete with the new urban office spaces will continue to fall behind the eight ball. To remain competitive, larger Suburban properties that can be repositioned to provide downtown-like amenities will be the first to see tremendous benefit.
With extensive expertise in all aspects of Commercial Real Estate and presence in the Chicago area, we at Friedman are looking forward to all that the future has in store. Interested in seeing how you can set your business up for success in 2019? Reach out to learn more.
Vice President, Brokerage Services