Global CRE Outlook: Economic Growth, Political Uncertainty To Weigh On Markets This Year

There is a common theme around the world affecting the CRE outlook in global markets: political uncertainty.

The United Kingdom is preparing to leave the European Union, and Italy is considering its own break from the EU. France, Germany and the Netherlands are prepping for national elections, and the U.S. continues to guess the effects of President Donald Trump’s proposed policies. While his push for tax cuts, financial deregulation and infrastructure spending are expected to spur economic growth, anti-trade talks and his recent immigration and refugee ban have some Wall Street analysts re-evaluating their initial forecasts.

Despite how these unknowns will impact domestic economies in the long haul, 2017 is projected to be a strong year, according to CBRE’s recent global market report. The woes of the oil and commodities industry have eased and governments are raising their spending on infrastructure while unemployment continues to fall. As these economic factors set the stage for a strong 2017, here is what to look for in retail, office, industrial and hotel markets on a global basis, according to CBRE.

Office

Though office dynamics will vary depending on the market and regions within them, on a global basis office leasing activity is expected to slow due to labor shortages and a drawback in office-using employment. As office occupiers push to balance costs with workplace and amenity enhancement to remain competitive for young and qualified talent, shifting supply dynamics are beginning to take effect. In Europe and the U.S., development has been subdued for the most part, and though there are some indications of a pickup coming, construction in both markets remains below previous cyclical peaks. 

Retail

Ever the weak link in commercial real estate, retail expansion is expected to continue at a moderate and cautious pace this year, though tech will remain a major distributor. Expanding brands tend to stick with smaller format stores of roughly 2,700 SF — a safe bet in an ever-changing landscape where consumer preferences lean more in favor of tech-centric shopping. CBRE expects retailers in prime locations will increasingly build out showrooms for customer engagement to combat online sales, with continued growth in the food and beverage industry expected to grab more square footage.  

Industrial

Technology and e-commerce will continue to drive demand globally in this sector, with CBRE projecting continued favorable conditions for industrial real estate this year. Though rents remain on the rise, there is a leveling off in Europe, where the logistics sector had an uptick in supply last year. In North America, the industrial outlook remains mixed as Canada remains in the early stages of adopting a supply chain fitting for the stages of online retail expansion, while demand in the U.S. remains strong and established. There has been talk of a subtle slowdown in industrial demand in the U.S. as users wait to see how their investments pan out. 

Hotel

Demand has slowed somewhat in this sector as security issues abound globally, particularly in Europe where Paris and Brussels both experienced terrorist attacks last year. This lull in demand is likely to persist in both Europe and Asia the first half of the year, with both businesses and consumers expected to spend less on travel. Similarly, demand is expected to plateau in the U.S. thanks to a strong dollar. Tech disruptors like Airbnb will have a continued effect. Hoteliers across the globe are increasing their services and amenities to remain “Airbnb-proof.”