While the economy continues to enjoy a near record-breaking expansion, not all commercial real estate sectors are reaping the benefits. The industrial sector continues to be the bright spot in the commercial industry. Ironically, a significant factor in its growth is due to the demand for more distribution centers for retailers shifting their focus from bricks-and-mortar retail to e-commerce. Companies like Amazon and Walmart are seeking to establish distribution centers closer to customers to compete for fast delivery.
In contrast to the growth in the industrial sector, office space is relatively flat. Even though new jobs are being added, the demand for office space is not growing at the same rate. The result is a delicate balancing act for commercial office space. In order to get more office space filled, more people need to continue to enter the job market. Suburban markets are filling office space at faster rates than downtown locations.
Commercial retail space is also being impacted by the employment rate, specifically by consumer earnings. Income increases are not keeping pace with the rate of employment making people wary of spending. Families feeling the pinch of slow growth in pay also have less money to devote to saving. Since one of the largest purchases requiring a sizeable investment is home buying, decreases in the rate of saving will negatively impact the multi-family real estate sector as well.
However, the new federal tax plan may help fill some of the new apartments that continue to spring up. Under the tax reform, the benefits of owning a home decreased, which may drive the rate of apartment rental upwards.
As the impact of the Great Recession eases, foreign investment in commercial real estate is filling some of the vacancies in domestic spending in the office space acquisition. After the instability and economic concerns swirled around the President’s first year in office, many investors have regained confidence. Federal tax breaks aimed at spurring business growth encourage investment in this area. Stability in global markets is also boosting investor confidence. The biggest investors in US commercial real estate are Canada, Singapore, and China.
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