Pull quote

“Investors and capital managers will continue to have a strong appetite for core and core-plus investment opportunities, as there is a tremendous amount of liquidity in the market. The sheer amount of liquidity in the market will continue to put downward pressure on cap rates, despite a rising interest rate environment.  Deploying capital in 2019 will be even more difficult than in previous years.”

Full prediction

As we begin 2019, market volatility on Wall Street, relatively low-cost mortgage capital and strong underlying fundamentals in the market will continue to attract equity from all angles—ranging from individual to institutional investors and everyone in between. Ongoing economic uncertainty will continue to drive investment toward core, core-plus and value-add commercial real estate in northern New Jersey’s industrial and multi-family asset classes, while office and retail assets classes are considered less desirable and will continue to be acquired on a more selective basis for possible redevelopment or adaptive reuse.

In the capital markets, the underlying U.S Treasuries are still below their long-term averages and near historic lows. However, the yield curve inverted late in 2018, which, historically speaking, is the precursor to a recession. Unlike the sub-prime lending spree leading up to the last financial crisis, banks and investors have been much more prudent in their approach to lending during our latest market expansion. U.S. Treasuries recently peaked around November 1, 2018 but have since reduced by approximately 50 basis points. The lending community has been accommodative to the commercial real estate investment community for the last 18-24 months by reducing spreads as U.S. Treasuries rise.  However in 2019 I predict lenders will become less accommodative as the market becomes increasingly volatile, meaning pricing for fixed rate mortgages will hold steady at more “normalized” rates and will be less likely to fluctuate when the U.S. Treasuries fall. The rising cost of capital will put pressure on non-core commercial real estate values.

Investors and capital managers will continue to have a strong appetite for core and core-plus investment opportunities, as there is a tremendous amount of liquidity in the market. The sheer amount of liquidity in the market will continue to put downward pressure on cap rates, despite a rising interest rate environment.  Deploying capital in 2019 will be even more difficult than in previous years. Despite these challenges I see the commercial real estate market as a leading sector of the economy into 2019 as investors search for yield and safe harbors for capital amidst increased economic volatility.