Home » News » Real estate investment in the US – upsurging or declining?

Whether the scenario in US real estate investment is upsurging or declining can be stated considering certain facts. In the Q2, the unevenness in financial markets since nine months seems to continue with signs of reassurance. After 2015’s high volume, the real estate market seems to have started normalizing now.

Looking at 2017, the US property market would continue with increased flow of investors, high volume of transaction and strong fundamentals. Even in economic and employment sectors, the States continues to develop and add more job opportunities. With unemployment rate going down below 5% last year, there has been a rise in demand for housing.

Here’s what’s waiting in the upcoming year – whether it is upsurging or declining.

Trends in 2017: 

Commercial real estate in the United States is going to be hit by 5 major trends in 2017 –

  1. Uncertainties in economic and political sphere globally

The recent Brexit case in the United Kingdom added latest uncertainties that are going to remain much less resolved, and less understood in near future. So, US property market is expecting a positive impact as real estate assets are becoming valuable and more attractive amongst global investors.

As per prediction by IMF, “Emerging markets are recovering; so, there can be a higher growth in economic sector globally.”  There will be increased real estate inflows in the US market.

  1. Participation of foreign investors in the States

Real estate market in the United States has become a safe haven for foreign investors and it is expected to increase. While Europe and China are presently experiencing a slowed down growth with dampened currencies, there are many other investors having a strong demand for assets of US.

Look back in 2015, US assets purchase by foreign buyers increased above $87 billion in 12 months, as per reports from AFIRE. A considerable percentage of AFIRE members are expecting an increase of investment in the US real estate market in 2017.

  1. Slowing down new supply

While any addition is likely to remain limited, there would be modest growth in supply in few sectors only like student housing, senior housing, single-tenant industrial and multifamily.

  1. Cap rate environment and lower interest

The ten-year Treasury yields, which dropped to 1.24% after the Brexit case in the UK, rose back above 1.5% recently. Hence, in early 2017, a more normal range of 1.75% – 2% is expected from those yields. And investment in US real estate market is estimated to rise rapidly keeping the squeeze on the cap rates spreads a major concern.

Currently, there is a little hint on dramatic push- of cap rates by the rate increase.

  1. Volatility in Energy Markets

Volatility in the energy market has affected some producer nations and regional economies already. Like in oil and gas industry, drop in oil prices continued till early 2016 and substantial volatility remained through mid-year. There is an oversupply in the world with a strong economic impact, affecting the pricing of commercial real estate. Lower cost of operation and improving tenant fundamentals will give property markets a short-term lift.

Hence, this can be summed up that growth of the US is relatively stable now – it is upsurging. Rates of return on fixed incomes and lending would likely remain quite low. This would encourage more levered purchases of US property amongst investors.