These 5 CRE Sectors Have Economists Feeling Optimistic

Economists are optimistic about this year's commercial real estate investment activity following a tumultuous 2017 that saw investment levels falter in some sectors while others witnessed massive growth. Here are the five commercial real estate sectors expected to experience solid progress in the year ahead, according to the Sarasota Herald-Tribune.

Retail

Despite numerous announcements about retailers shuttering their doors, a large percentage are expanding, leaving vacancy rates relatively flat toward the end of Q4, the Herald-Tribune reports. The end of 2017 also brought good news in the form of better-than-expected sales and employment numbers from major retailers. Analysts expect the trend to persist in the coming months as consumer confidence remains high, and retailers begin to shift their strategies to incorporate more digital and omnichannel offerings to suit a new type of consumer. Retail bankruptcies are also anticipated to decrease in the coming months with Moody's analysts predicting that the sector's sales will increase by 4.5% overall.

Industrial

Industrial saw major growth throughout 2017 and that is expected to continue in the coming months. Strong economies in Asia and Europe are anticipated to lead to more trade and therefore more business in the industrial sector for U.S. operators. The tax bill is also expected to contribute to the health of the sector as increased consumer confidence will encourage more retail and e-commerce sales, which will drive up the need for industrial real estate.

Construction

Project completions remained strong in the apartment sector, flat in the office sector and continued to decline in the retail sector throughout 2017, according to the Herald-Tribune. The sector has struggled in the past year because of labor shortages, but there is renewed hope after both spending and hiring increased toward the end of 2017 with 30,000 new jobs being added in December. The new tax laws have also added to the increased enthusiasm as financial deregulations are expected to foster more investment in projects moving forward.

Multifamily 

Following a number of delivery delays caused largely by construction labor shortages, this sector is expected to witness a strong year ahead. Approximately 284,000 apartments are anticipated to come online over the next 12 months, making it the second-largest number of completions in the current cycle, according to a CBRE report.

Office

Changes to the new tax laws, which could provide a boost to employers' bottom lines through tax cuts, have analysts predicting steadier leasing activity and rent growth in the office sector, though it will not be felt until the latter half of 2018, the Herald-Tribune reports.

Still, the sector will experience a balancing act of sorts as new supply levels converge with occupancy rates and asking rents this year. While vacancy rates have remained steady for the past two years, they may begin to increase over the next two. This will be felt less in the suburban office markets, which are anticipated to outperform urban centers with continued positive absorption and low vacancies.