2018 won’t be as strong of a year for commercial and multifamily real estate investments as 2017, the Mortgage Bankers Association predicted in an annual report released today.
“Commercial and multifamily real estate finance is at the end of the latest act in a long-running play… It is clear that the next five years will be quite distinct from the last five,” the study said.
Rising interest rates and a slowing growth in net operating income are likely to dampen returns, the mortgage finance trade group forecasted.
While solid income returns are expected to continue over coming years, the report cautioned the pace of growth won’t probably match the last few years when strong demand was met with little new supply.
“It is unlikely property values will continue to increase the way they have in recent years,” the study said.
Bolstering prospects, though the Mortgage Bankers Association said the tax reform bill passed last year will lead to a significant boost in after tax yields on many commercial real estate investments.
The group added the continuing surge in the economy should support continued occupancy and rent growth, providing further fuel for commercial property fundamentals.
Retail properties were cited as a trouble spot in the report.
While prices for all commercial property types climbed 7.6% in 2017, values for retail properties increased by just 2.3%.
“Sales of retail properties have been hard hit by the negative perceptions of the sector. Borrowing and lending backed by retail properties has followed the malaise,” the trade group reported.
However, as vacancy rates for industrial properties have declined every year since 2010, investors have flocked to this niche of the commercial real estate market, the researchers noted.
Commercial and multifamily mortgage delinquency rates were at or near all-time lows last year, according to the study.
