New research from TH Real Estate predicts that the up-and-down stock market that we’ve seen of late shouldn’t scare off real estate investors. In fact, they portend a growing economy and that real estate market conditions will remain solid, especially in three markets: Los Angeles, Chicago and New York.
The nations GDP grew by 2.3 percent last year, up from the 1.5 percent growth in 2016. TH Real Estate, an affiliate of Nuveen, expects that growth to continue, supported by early signals throughout the first quarter of 2018..
“Recent volatility in the equity markets is causing some investors to call in to question the health of this nine-year upcycle,” the report’s authors wrote. “Does recent volatility in the stock market indicate a recession is imminent or were those pesky trading algorithms playing games again? All signs point to a positive outlook.”
Not all indications are rosy. Supply has caught up to demand in non-industrial sectors, causing vacancy rates to stabilize or move modestly higher. This, along with the 2.9 percent 10-year US treasury yields and inflation expectations may abate investors’ risk appetite as indicated by the 11 percent retreat of the S&P 500 in February, right after reaching an all-time high in January.
However, job growth remains positive as the longest streak of monthly job gains on record continued into the year. Rent growth and the availability of mortgage debt and construction lending indicate that commercial real estate investors are poised for gains in 2018.
Los Angeles and New York had over $28 billion and $23 billion worth of sales transactions, respectively. But TH Real Estate highlighted several factors when including Chicago in its top three “cities to watch” for 2018.
Chicago was the fourth largest U.S. commercial real estate market in 2017 with over $17 billion worth of sales transactions. Several relocations and expansions into the city include tech giant Siemens with a new digital research and development office downtown. As of October 2017, Chicago was home to 31 Fortune 500 companies. The region is quickly becoming a magnet to millennials, attracted to innovative tech hubs.
The estimated 9.8 million residents in the Chicago-Naperville-Elgin metropolitan area make up a deep talent pool. Well-regarded universities such as University of Chicago, Northwestern University and Illinois Institute of Technology turn out high-quality applicants and over 22 percent of the population over 25 has obtained a bachelor’s degree.
Chicago’s central location and strong rail, road and air infrastructure make the market an important Midwestern hub for industrial users and makes the region easily connected to rest of country. In 2016, domestic and international visitors totaled 53.9 million.