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Seven Reasons to Still Be Bullish on Commercial Real Estate in 2019 – Part 2

“A ship in the harbor is safe, but that is not what ships are built for.”
– John A. Shedd


Investing in commercial real estate, even as it’s at the peak of the market, can be a lucrative and stable investment. The odds are even more in your favor if you are forward-thinking in your approach. In this three-part series, we will offer seven reasons why you should (still) be bullish on commercial real estate in 2019.

Seven Reason to be Bullish Part 1 focused on the role of evolving commercial real estate demographics and technological changes, which are important variables to consider. Equally important is the essential relationship between real estate and the U.S. economy. As the current economic expansion enters into its tenth year, many experts express concern of an inevitable downturn. However, two key factors suggest that the demand for commercial real estate isn’t going anywhere, and a creative approach and positive outlook could produce advantageous opportunities.

Part 2: The Strength & Accessibility of the U.S.

CAPITAL ALLOCATIONS TO U.S. REAL ESTATE REMAINS ROBUST

According to Deloitte’s 2019 CRE Outlook, which surveys 500 C-suite executives from the international real estate community:

“Most institutional investors are committed to the CRE industry over the next 18 months, despite concerns around a flattening yield curve, various country tax reform initiatives, the potential trade tariffs in the United States and the uncertainty around the impact of Brexit.”

Despite what we domestically might observe as a dysfunctional political environment, the United States remains a safe-haven for capital and the most popular commercial real estate investment market in the world. Even with tighter capital controls in China, capital flow into the U.S. increased in 2018, after falling in 2016 and 2017. This trend, in addition to record amounts of capital raised domestically, have kept cap rates low and prices high, even against the backdrop of rising interest rates. One reason? Even as the cost of debt increases with interest rates, a glut of equity is contributing to a lower overall cost of capital.

As technological innovations give investors access to more investment opportunities and market data continues to democratize commercial real estate investing, the market for matching investors and properties has been transformative and will continue deepening connectivity across the globe.

U.S. COMMERCIAL REAL ESTATE IS MORE ACCESSIBLE THAN EVER

With more and better data, technology-driven platforms that give buyers a more robust toolbox and plentiful options for debt, U.S. commercial real estate is becoming a more, not less popular investment vehicle.

As the recent wild swings on Wall Street remind us, public equity markets are increasingly opaque. Similarly, private equity and hedge funds are seeing investors steer capital towards real estate in search of more consistent returns and lower fees. The tangibility of investing in property, the direct control it can offer, and relatively strong fundamentals in most markets are encouraging commercial real estate investors to take their financial future into their own hands.

There will be an inevitable correction, as there always is after such a prolonged boom. Some investors will lose money, but the factors underpinning the desirability of investing in U.S. real estate are not going away.

Focusing too much on predicting the crash is a terrific way to sound smart at cocktail parties, but also a time-tested method for missing out on great investment opportunities.

Making commercial real estate investments this late in any cycle can be a nerve-racking proposition. They key to finding good opportunities in this environment is to find long-term, persistent trends that will persist after the inevitable downturn has run its course.