When the Urban Land Institute’s New York division gathered a year ago to give its outlook for the real estate market in 2016, fears over the Chinese economy and global markets dominated. Now, a year later, the outlook has reversed. Industry leaders now fear instability from within the U.S., and see foreign capital as a stabilizing force.
The key sources of uncertainty: rising interest rates and the next president.
“I think the offshore capital is saving the core and core-plus markets,” said James Kuhn, president of Newmark Grubb Knight Frank . He argued that the prospect of rising interest rates in the U.S. has been putting upward pressure on record low cap rates on the lowest end, and that prices for trophy properties would be falling more rapidly if it weren’t for foreign investors still buying them up.
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Lauren Hochfelder Silverman, head of the Americas at Morgan Stanley Real Estate Investing, said her company is “looking for places where we can get (net operating income) growth that can outpace what we believe will be several rate hikes in the next couple of years.” She also said she hopes the Federal Reserve “doesn’t get ahead of us” in raising rates too quickly.
Peter Riguardi, JLL’s tri-state president, was more optimistic than Kuhn, arguing that “the modest increase in rates isn’t scaring anyone” and that cap rates have already corrected upwards. But he said he has noticed a decline in demand for office space.
Interest rates aside, the panelists also pointed to Donald Trump as another major source of uncertainty.
“My biggest concern, respectfully, is Trump,” Riguardi said, arguing that the actions of an unproven president could unsettle markets.
Bill Rudin, CEO of Rudin Management Company, said it’s too early to tell how the new administration will impact the real estate market, but he indicated big changes could be in store.
“We’re in a totally different world with the election and tax reform,” Rudin said.