The commercial real estate market in 2017 is going to be influenced by several factors like demographic shifts, technological advancements, longevity, growing urbanization etc. Profitability will be highly impacted by regulatory and macroeconomic developments.
Is it just too much to expect bottom and top line growth?
Let us look at some of the latest home trends that would affect home buying and selling:
In the year 2017, higher interest rates are bound to dent the growth rates. The US Economic Forecast by Deloitte predicts that the GDP or Gross domestic product will shoot by 2.5%. The slow rate of economic growth will affect the transaction activity in the commercial real estate segment.
Global market trends are not very good and it has led to lowering of interest rates. Experts are of the belief that Federal Reserve is going to increase the rates further this year for the short-to-medium term. The mortgage costs will bear the impact of increased interest rates and the higher mortgage rates will lead to slow down in the real estate market.
The unemployment rate is going to dip, which is good news because higher labor participation is expected to improve the employment scenario. Consumer confidence will get a boost because of the increase in household wealth and better labor markets.
In 2017, compliance cost is going to increase and this too is going to impact the real estate market. There are new accounting standards slated to come into play for revenue recognition and lease accounting. This in turn is going to spike the administration and compliance costs for the engineering and construction companies and real estate investment trusts.
The rules for risk retention will push down the issuance of commercial mortgage backed securities and bring down the capital availability even though exemptions will be provided under Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).
Above all this, the PATH or Protecting Americans from Tax Hikes will further ease the tax provisions of REIT and R&D tax credits for the E&C companies. This will further create a very conducive situation for investing in startups to carry out R&D experiments. The corporate tax reforms will be able to reduce flexibility for companies to turn their real estate properties into the REIT structures.
In 2017, the real estate companies will have reinvent and apply strategies properly to counter as well as respond to any changes pertaining to the macroeconomic environment.