UNCHARTED TERRITORY - EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 - Deloitte

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UNCHARTED TERRITORY - EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 - Deloitte
EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019

UNCHARTED
TERRITORY
                                      US economic expansion
                                      approaches record length
                                      PAGE 2

                                      Preference soars for CRE vs.
                                      stocks, bonds and cash
                                      PAGE 28

                                      Positive trends
                                      emerge in retail
                                      PAGE 40

                                                                 ®
UNCHARTED TERRITORY - EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 - Deloitte
Expectations & Market Realities in Real Estate 2019
     Uncharted Territory

     © 2019
     Deloitte Development LLC
     NATIONAL ASSOCIATION OF REALTORS®
     RERC LLC
     Situs
     All Rights Reserved.

     No part of this publication may be reproduced in any form
     electronically, by xerography, microfilm, or otherwise, or
     incorporated into any database or information retrieval system,
     without the written permission of the copyright owners.

     Expectations & Market Realities in Real Estate 2019 is published by:

     Deloitte Development LLC
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     Chicago, IL 60606

     NATIONAL ASSOCIATION OF REALTORS®
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     Chicago, IL 60611

     RERC LLC and Situs
     5065 Westheimer Road
     Suite 700E
     Houston, TX 77056

     Disclaimer: This report is designed to provide general information in regard to the subject
     matter covered. It is sold with the understanding that the authors of this report are not
     engaged in rendering legal or accounting services. This report does not constitute an offer
     to sell or a solicitation of an offer to buy any securities, and the authors of this report advise
     that no statement in this report is to be construed as a recommendation to make any real
     estate investment or to buy or sell any security or as investment advice. The examples
     contained in the report are intended for use as background on the real estate industry as a
     whole, not as support for any particular real estate investment or security. Neither Deloitte,
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     as to the accuracy of or assume any liability for the information contained herein.

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UNCHARTED TERRITORY - EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 - Deloitte
EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 / Uncharted Territory

TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION

Uncharted Territory......................................................................................................................2
US Economy’s Long and Slow Recovery.......................................................................................2
CRE is an Attractive Investment Alternative...................................................................................3
Yield Curve Inversion: Signal or Noise?........................................................................................5
Cyclical and Structural Changes..................................................................................................6
The Deloitte 2019 Commercial Real Estate Outlook..................................................................10
The 2018 Deloitte Dbrief...........................................................................................................11

CHAPTER 2: THE ECONOMY

Global Perspectives...................................................................................................................15
US Economy.............................................................................................................................16
Employment Trends...................................................................................................................18
Housing ...................................................................................................................................19

CHAPTER 3: THE CAPITAL MARKETS

Laws and Policies Impacting the Capital Markets.......................................................................22
The Equity Market.....................................................................................................................27
Investment Alternatives.............................................................................................................28
Inflation and the Fed.................................................................................................................28
Availability and Discipline of Capital..........................................................................................29
CRE Debt Market.......................................................................................................................29
CRE Equity Market....................................................................................................................31

CHAPTER 4: THE PROPERTY MARKETS

The Office Market......................................................................................................................36
The Industrial Market................................................................................................................38
The Retail Market......................................................................................................................40
The Apartment Market...............................................................................................................44
The Hotel Market.......................................................................................................................46

CHAPTER 5: OUTLOOK

Economy...................................................................................................................................50
Financial Markets......................................................................................................................50
Situs RERC 10-year Treasury Forecast........................................................................................51
CRE Debt Market Outlook..........................................................................................................51
CRE Equity Market Outlook........................................................................................................51
Situs RERC Total Return Forecasts.............................................................................................53
Property Type Outlook................................................................................................................56
Conclusions..............................................................................................................................58
Alternative Economic Scenarios.................................................................................................59

Sponsoring Firms......................................................................................................................62
Situs RERC................................................................................................................................62
Deloitte.....................................................................................................................................63
NATIONAL ASSOCIATION OF REALTORS®.....................................................................................64

                                                                                                                                                                                               iii
UNCHARTED TERRITORY - EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 - Deloitte
ABOUT OUR PARTNERS
DELOITTE                                                            NATIONAL ASSOCIATION                                                     SITUS RERC AND SITUS
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Deloitte is a recognized leader in provid-                                                                                                   Since 1931, Situs RERC, a wholly owned
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UNCHARTED TERRITORY - EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 - Deloitte
EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 / Uncharted Territory

FOREWORD
Dear Readers,

Investors are traveling into uncharted territory as the US econ-
omy’s expansion surpasses its 10-year anniversary in July 2019,
which would break the record for the longest economic expansion
since the government started collecting records in the 1850s.
Unemployment fell below 4% – which would have been almost
unthinkable a decade ago – without sparking inflation to rise
much above 2%. While it is certainly good news that the economy                      Matthew G. Kimmel, CRE, FRICS, MAI
has been growing for a decade in the wake of the worst downturn                Principal & US Real Estate Services Leader
since the Great Depression, many fear that another downturn              Deloitte Transactions and Business Analytics LLP
could be on the horizon. Investors are worried because they know
nothing good lasts forever, and they see potential disruption in the
economy – perhaps caused by political turmoil around the world,
the potential for continued raising of interest rates, or uncertainty
caused by global trade discussions. In 2018, the stock market rode
a roller coaster and ended down for the year. So we enter 2019
asking the question: What will the year bring for the US and global
economies and the commercial real estate (CRE) market?

The good news for CRE investors is that solid property fundamen-
tals are underlying strong valuations and these valuations are
supporting high prices. All the property types seem to be holding
their own — including retail — which has struggled in recent
years due to overbuilding and the rise in e-commerce. Surviving
retailers are learning how to adapt to new technology and changes
in consumer shopping tastes. As more consumers make online
purchases, the need for distribution centers increases and demand
for industrial space keeps growing. The apartment sector exhibits                                         George Ratiu
renewed strength, thanks — in part — to a continuing problem                    Director, Housing & Commercial Research
with affordability for single-family housing. In the hotel sector,                NATIONAL ASSOCIATION OF REALTORS®
room supply, room demand, occupancy, average daily rate (ADR)
and revenue per available room (RevPAR) are at all-time highs. The
office sector has been spurred by increased investment in non-ma-
jor and suburban markets.

We expect continued volatility in the financial markets, along with
a slow but steady rise in interest rates and Treasury rates. Debt and
equity capital should continue to be readily available. We expect
that equity capital will be more disciplined.

For this report, Situs RERC, Deloitte and the NATIONAL ASSOCIA-
TION OF REALTORS® are once again pleased to provide you with
our outlook into the commercial real estate market, the economy,
the capital markets and the property markets and to provide our
collective perspectives for 2019.

We would like to extend our gratitude to all who contributed to               Kenneth P. Riggs, Jr., CFA, CRE, MAI, FRICS
this report. This includes the data providers, survey respondents,                           President and Global Head
economists, researchers and analysts, and reviewers and busi-                                                  Situs RERC
ness colleagues, without whom this report would not have been
possible. We also would like to thank our clients, subscribers and
consultants for their continued support of this annual publication.

                                                                                                                                               v
UNCHARTED TERRITORY - EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 - Deloitte
ACKNOWLEDGMENTS
SPONSORING FIRMS & CHAIRS                                                                         Nick Gibbs, MAI
                                                                                                  Manager
Matthew G. Kimmel, CRE, FRICS, MAI                                                                Deloitte Transactions and Business Analytics LLP
Principal
Deloitte Transactions and Business Analytics LLP                                                  Surabhi Kejriwal
                                                                                                  Research Leader, Real Estate
George Ratiu                                                                                      Deloitte Support Services India Pvt. Ltd.
Director, Housing & Commercial Research
NATIONAL ASSOCIATION OF REALTORS®                                                                 Nick LeVeque
                                                                                                  Senior Consultant
Kenneth P. Riggs, Jr., CFA, CRE, MAI, FRICS                                                       Deloitte Transactions and Business Analytics LLP
President and Global Head
Situs RERC                                                                                        Saurabh Mahajan
                                                                                                  Manager, Real Estate
LEAD CONTRIBUTORS                                                                                 Deloitte Support Services India Pvt. Ltd.

Jodi Airhart                                                                                      Noel Nathan
Director                                                                                          Analyst
Situs RERC                                                                                        Situs RERC

Todd J. Dunlap, MAI, MRICS                                                                        Madison Martin
Senior Manager                                                                                    Graphic Designer
Deloitte Transactions and Business Analytics LLP                                                  Situs RERC

Kenneth W. Kapecki, CRE, FRICS, MAI                                                               Alec Roth
Managing Director                                                                                 Analyst
Deloitte Transactions and Business Analytics LLP                                                  Situs RERC

Jen Rasmussen, PhD, Editor-in-Chief                                                               Matthew Schmitz
Assistant Vice President                                                                          Marketing Intern
Situs RERC                                                                                        Situs RERC

ASSOCIATES                                                                                        Shradha Shrestha
                                                                                                  Associate
Charles Ellis                                                                                     Situs RERC
Copy Editor
Situs RERC                                                                                        Nellie Tiggelaar
                                                                                                  Senior Consultant
                                                                                                  Deloitte Transactions and Business Analytics LLP

vi   ©2019 Deloitte Development LLC, NATIONAL ASSOCIATION OF REALTORS®, Situs RERC. All Rights Reserved.
UNCHARTED TERRITORY - EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 - Deloitte
EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 / Uncharted Territory

CHAPTER 1:
INTRODUCTION

                                               CHAPTER 1 INTRODUCTION 1
UNCHARTED TERRITORY - EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 - Deloitte
SEATTLE
                                                                      INTRODUCTION
                                                                      UNCHARTED TERRITORY                                the residential lending market would be a
                                                                                                                         trigger because they didn’t take into account
                                                                      Real estate has historically been known for        what was happening with derivatives and
                                                                      its cycles, which have included some big           its ripple effect. It’s entirely possible that the
                                                                      highs and some low lows, but we are now            next economic downturn could be caused by
                                                                      at a unique time in the current cycle – and        something that the economic experts haven’t
                                                                      the norms of the past regarding pace and           anticipated. Maybe the lingering effects of
                                                                      cadence are foundationally different. This         the record-long US government shutdown or
                                                                      causes us to ask, what does this mean and          some unforeseen fallout from Brexit?
                                                                      what can we expect?
                                                                                                                         The GFC was the world’s worst financial
                                                                      We are entering uncharted territory. If            downturn since the Great Depression of the
                                                                      the current economic expansion continues           1930s, and few believe the next downturn
                                                                      through June 2019, it would mark the lon-          will approach anything that severe, accord-
                                                                      gest expansion in US economic history since        ing to a Forbes article titled 4 Market Trends
                                                                      records started being collected in the 1850s.      to Watch in 2019. The GFC was structurally
                                                                      Based on data from the National Bureau of          different from past recessions and more like
                                                                      Economic Research (NBER), the average              the Great Depression than a typical down-
                                                                      post-World War II expansion phase was 58.4         turn. The deeper the ditch, the longer it
                                                                      months; the current expansion phase will           takes to climb out, and that was the case in
                                                                      surpass 120 months in July 2019, assuming          the aftermath from the GFC.
                                                                      it reaches this historic milestone. We have
                                                                      been crawling the wall of worry for at least       Investors are trying to predict the impact of
                                                                      the past two years that a correction — in          the numerous challenges around the world
                                                                      both real estate and the overall economy —         and at home, including the US government
                                                                      is looming. A future recession is inevitable,      shutdown, the collapse of Brexit talks, mili-
                                                                      but there is no way of knowing when it will        tary conflicts across the globe and political
                                                                      occur or how severe it will be.                    and social unrest. It’s unclear how any — or
                                                                                                                         if — these challenges will end up affecting
                                                                      It’s clear that the concerns and accompa-          the US or world economy in major ways, but
                                                                      nying jitters caused by certain elements are       it’s not unreasonable to worry.
                                                                      impacting how people view the economic
                                                                      landscape and what will come next. The             US ECONOMY’S LONG AND SLOW
                                                                      Federal Reserve’s past and the potential for       RECOVERY
                                                                      future rate increases, trade disputes, global
                                                                      and geographic disputes and the psycholog-         Gross Domestic Product (GDP) growth has
                                                                      ical effect of approaching 10 years of expan-      been slow and steady during this expan-
                                                                      sion are all contributors to these jitters. Even   sion, averaging 2.3%. By comparison, GDP
                                                                      absent some other factors, just the psycho-        growth ranged from 2.9% to 7.0% (averag-
                                                                      logical aspect of the 10-year mark is making       ing 4.6%) across all other recovery cycles
                                                                      people nervous, whether it’s warranted or          since the aftermath of World War II. Histor-
                                                                      not.                                               ically, slower economic growth has been
                                                                                                                         associated with longer expansion periods.
                                                                      The length of any cycle is not set in stone,
                                                                      and many things are different now from             The tax cuts passed at the end of 2017 likely
                                                                      previous cycles. It is important to separate       helped boost GDP and wage growth in the
                                                                      the cyclical changes from the structural           short term. In 2Q 2018, GDP growth reached
                                                                      changes. Even though there are many struc-         4.2%, the highest rate in nearly four years,
                                                                      tural changes, we should not fall into the         but declined to 3.4% in 3Q. The long-term
                                                                      “this time will be different” mentality.           effect of the tax cuts is uncertain. In Decem-
                                                                                                                         ber 2018, the Federal Open Market Committee
                                                                      Before the Global Financial Crisis (GFC),          (FOMC) projected that GDP growth would be
                                                                      people didn’t believe that the problems in         1.8% by 2021, 40 basis points (bps) lower than

    2     ©2019 Deloitte Development LLC, NATIONAL ASSOCIATION OF REALTORS®, Situs RERC. All Rights Reserved.
UNCHARTED TERRITORY - EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 - Deloitte
EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 / Uncharted Territory

2Q 2018’s 2.2%. As the tax cuts have not been      consumer confidence is at an 18-year high,           26,616.71 on January 26 2018, the index fell 4%
accompanied by a major decrease in federal         and inflation and wages are finally starting         the next week, and on February 8 the Dow
spending, the federal deficit, which is already    to pick up. This has helped fuel continued           fell more than 1,000 points to 23,860.46. The
at historic highs, will continue to increase,      GDP growth, which was 3.5% in 3Q 2018,               market recovered, however, rising past 26,800
weighing down on future economic growth.           down from 2Q 2018 but still above expecta-           by October 3. Unfortunately for investors,
                                                   tions and the 2.2% growth rate in 1Q 2018.           the stock market experienced several major
Wage growth and inflation have finally begun       The tight labor market, high consumer con-           declines in October and November, essentially
to pick up, and the ultra-accommodative pol-       fidence and increasing wage growth con-              erasing all the 2018 gains. In just two days —
icies of the Fed began to reverse course just in   tinue to boost the economy.                          November 19 and 20 — the Dow Jones dropped
the past two years. Public debt, which helped                                                           nearly 950 points or 3.73%. Then, in Decem-
shake us out of the crisis, has been at or near    AMID VOLATILITY OF STOCKS AND                        ber, the Dow, S&P 500 and Nasdaq all dropped
100% of GDP since 2012 and this has likely         WEAKENING BONDS, CRE IS AN                           about 9%. The Dow finished the year barely
contributed to the ongoing sluggish economic       ATTRACTIVE INVESTMENT ALTERNATIVE                    above 23,000, a drop of about 7.5% from the
growth since the recession. Recent pro-cycli-                                                           beginning of the year, despite a record 1,080-
cal fiscal policies will likely only exacerbate    According to data from the Federal Reserve           point rise (4.9%) on December 27. Following
the problem long term.                             Bank of St. Louis (FRED), the Dow Jones Indus-       the poor stock performance in December 2018,
                                                   trial Average (Dow) had its worst yearly price       there was a rebound in January 2019.
The unemployment rate — which remained             change in a decade in 2018, and the year was
3.7% for three straight months before notch-       filled with volatility. The Dow increased or         The S&P 500 total return index and Nasdaq
ing up to 4.0% in January despite contin-          decreased by more than 2% in a single day on         suffered through similar ups and downs in
ued job growth – is near a 50-year low,            21 occasions in 2018. After climbing to a record     2018 based on data from FRED. The S&P

                                                                                                                                                       ATLANTA

                                                                                                                                  CHAPTER 1 INTRODUCTION 3
UNCHARTED TERRITORY - EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 - Deloitte
500 either increased or decreased by greater                        find that private CRE holds its own against                    Baa have averaged 400 bps and 320 bps,
than 2% in a single day on 18 occasions in                          stocks over the long term without having the                   respectively. These spreads are commen-
2018. The Nasdaq was arguably more vol-                             added risk of volatility. In 3Q 2018, private CRE              surate with historical bond returns. The
atile; it increased or decreased by greater                         total returns, as measured by the National                     Moody’s Aaa 10-year and 15-year average
than 3% in a single day on 11 occasions in                          Council of Real Estate Investment Fiducia-                     return spreads compared to private CRE
2018. The S&P 500 total return index stayed                         ries (NCREIF) Property Index (NPI), declined                   return expectations were 420 bps and 400
approximately in the 5,500-5,700 range                              slightly, but the institutional investors that                 bps respectively, while the Moody’s Baa
during 3Q 2018, with a return of 7.82% year-                        we talk to are content with the enduring sta-                  10-year and 15-year average return spreads
to-date (YTD) as of September 30, 2018,                             bility of the income component, considering                    were 310 bps and 300 bps, respectively.
while the Nasdaq stayed approximately in                            the wildly fluctuating returns for other asset
the 7,600-8,100 range during the quarter,                           classes. As of 3Q 2018, YTD returns for CRE,                   The 10-year Treasury rate increased almost
with a return of 12.18% YTD as of Septem-                           as measured by the NPI, were roughly 250                       80 bps between January and its 2018 peak
ber 30, 2018. By the end of the year, though,                       bps lower than the S&P 500 and 130 bps less                    on November 8; however, the rate declined
with losses paralleling those of the Dow                            than the Dow. The NCREIF Fund Index-Open                       by over 50 bps between November and
in November and December, the S&P 500                               End Diversified Core Equity (NFI-ODCE) was                     December 2018. Treasury rates are incred-
tumbled to about 2,500 (down 7% since the                           just over 200 bps lower than the S&P 500 and                   ibly low from a historical perspective and
beginning of the year) and the Nasdaq fell to                       only 81 bps lower than the Dow over the same                   appear to not be satiating investor appe-
below 6,600 (down about 5% for the year).                           period. See Exhibit 1-A for a comparison of                    tite for yield. Situs RERC finds that CRE
                                                                    returns.                                                       expected yield spreads have averaged 500
The attractiveness of a particular asset class                                                                                     bps YTD as of 3Q 2018. While below the
is relative to the desirability of alternative                      Comparing historical Situs RERC real estate                    10-year and 15-year average spreads of 600
asset classes, which can vary depending on                          yields vis-à-vis capital market returns pro-                   bps and 550 bps, respectively, the cushion
the risk appetite of the market - risk on and                       vides evidence that CRE returns remain at                      has still been enough to attract investors to
risk off. Comparing historical private CRE                          competitive and acceptable levels. 3Q YTD                      the CRE asset class.
returns to other investment alternatives, we                        spreads between CRE and Moody’s Aaa and

EXHIBIT 1-A. CRE & INVESTMENT ALTERNATIVES
                                                       YTD6                     1-Year                    3-Year                5-Year           10-Year           15-Year

    Current as of September 30, 2018

    Consumer Price Index1                             1.23%                     2.27%                     2.00%                 1.53%            1.42%             2.08%

    10-Year Treasury Bond2                            3.05%                     2.33%                     2.06%                 2.64%            3.85%             3.96%

    Dow Jones Industrial Average3                     6.56%                    20.76%                    20.49%                 14.57%           12.22%            9.97%

    NASDAQ Composite4                                12.18%                    23.87%                    20.31%                 16.36%           14.47%            10.55%

    NYSE Composite4                                   1.60%                     7.15%                    10.11%                 6.34%            5.68%             5.76%

    S&P 5003                                          7.82%                    17.91%                    17.31%                 13.95%           11.97%            9.65%

    NPI5                                              5.27%                     7.16%                     7.75%                 9.57%            6.42%             8.97%

    NFI-ODCE5                                         5.75%                     7.71%                     7.83%                 9.71%            4.62%             7.28%

    Nareit Index (Equity REITs)3                      1.78%                     4.31%                     8.97%                 9.57%            7.77%             9.63%
1
  Based on published data from the Bureau of Labor Statistics (seasonally adjusted).
2
  Based on average quarterly T-bond rates.
3
  Based on total return index, and includes the dividend yield.
4
  Based on price index, and does not include the dividend yield.
5
  NCREIF total return, composed of capital and income returns.
6
  Year-to-date (YTD) averages are not compounded annually except for CPI and NAREIT.
Sources BLS, Federal Reserve Board, S&P, Dow Jones, NCREIF, Nareit, compiled by Situs RERC, current as of September 30, 2018.

4      ©2019 Deloitte Development LLC, NATIONAL ASSOCIATION OF REALTORS®, Situs RERC. All Rights Reserved.
EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 / Uncharted Territory

Over the past few years, the Fed has been                              those in Germany (13%) and Canada (12%)
relatively transparent (and dovish) with                               show similar levels of interest.
                                                                                                                                                                               NEW YORK CITY
the timing and pace of its short-term rate
increases. These steady, incremental short-                            In the current environment, it’s more
term rate hikes have not appeared to have                              important than ever to remember something
had much impact on CRE, but developers                                 Warren Buffet famously wrote in a 2008 let-
and investors may be adversely affected by                             ter to the shareholders of Berkshire Hatha-
higher borrowing costs if the Fed maintains                            way: “Price is what you pay; value is what
its pace of rate hikes. Higher interest rates                          you get.” It is important to keep in mind that
lead to higher capitalization (cap) rates and                          pricing and value are both grounded in the
lower property valuation, which in turn will                           confidence that conclusions about price and
impact transaction volume. Research con-                               value are valid.
ducted by Situs RERC has found increased
institutional investor concerns over the past                          As the CRE expansion continues amid ris-
year regarding the impact of higher interest                           ing interest rates, CRE total returns are
rates on CRE. The extent to which the Fed will                         expected to continue to decline from their
continue to openly communicate its policy                              recent peaks. With price and value gains
decisions in advance and to be flexible with                           now slowing to more of a measured pace,
respect to rate increases and the winding                              and net operating income (NOI) continuing
down of its balance sheet will likely deter-                           on pace with a slow level of growth, CRE will
mine how the market reacts in the future. But                          rely on income to drive total returns moving
even if the rate hikes are steady and trans-                           forward versus value or price appreciation.
parent, they could take their toll over time if                        This is especially true of the gateway cities
they continue for several years.                                       and involves major core assets.

Private CRE gives investors a bond-like                                Prices are inflated in many markets, includ-
return plus an equity upside like that of a                            ing CRE markets, but the underlying confi-
stock investment. Institutional CRE is cur-                            dence on value of CRE generally supports
rently positioned well to achieve reason-                              the prices being paid today. Given the data
able returns in an otherwise shaky invest-                             provided to the authors of this report by
ment environment. The tangible nature of                               CoStar8 (and presented in chapter four of
the CRE asset class creates these favorable                            this report), investors should be confident
investment dynamics: cost barriers or sup-                             that rent growth and space market funda-
ply checks and balances; an observable and                             mentals will continue to be strong. This con-
understandable investment; transparency                                fidence about expectations is crucial, and
in the form of market data; and consistent                             today there is confidence about the expec-
valuation methodologies used by the indus-                             tations of solid private CRE performance,
try. These dynamics lead to relative stabil-                           even though these expectations are lower
ity and the predictability associated with                             than historical levels.
operating income from commercial proper-
ties vs. other alternatives. Thus, buyers and                          YIELD CURVE INVERSION: SIGNAL OR
sellers are on equal footing and are able to                           NOISE?
discern price vs. value in a more confident
manner relative to alternatives, making it                             There has been talk in the media and among
a viable asset class. In fact, Deloitte’s 2019                         investors about inverted yield curves and
Commercial Real Estate Outlook: Agility is                             what they mean for the markets and the
Key to Winning in the Digital Era7 finds that                          economy. Inverted yield curves have been
97% of global investors surveyed plan to                               a reliable leading indicator of recessions for
increase their capital commitment to CRE                               the last 50 years, so the fear in the markets
over the next 18 months; respondents from                              is reasonable. Data from the Research Divi-
the US plan to increase their capital com-                             sion of FRED indicates that the two-year
mitments by 13% in this time frame, while                              and 10-year Treasury yield curve declined

To download the full Deloitte 2019 Commercial Real Estate Outlook: Agility is Key to Winning in the Digital Era, visit https://www2.
7

deloitte.com/us/en/pages/real-estate/articles/commercial-real-estate-industry-outlook.html
CRE fundamentals data are provided by CoStar Market Analytics (www.costar.com), 3Q 2018. The information is provided “As Is” and
8

without any representations, warranties or guarantees.

                                                                                                                                                                    CHAPTER 1 INTRODUCTION 5
dramatically between late-November and                          The same article explains that banks make         At the same time, markets have gyrated on
early December 2018. The two-year and                           more profit by borrowing short term at            factors like the US-China trade tensions,
10-year spread reached its tightest since                       lower interest rates and charging borrowers       rising short-term interest rates, the length
June 2007 on both December 4 and Decem-                         higher longer-term interest rates. When the       of the current business cycle and declining
ber 11 at 11 bps.                                               spread is negative, banks will lose money         bond buying by the world’s central banks. A
                                                                on their loans, turning their business            Financial Times article titled US Credit Mar-
Simply put, an inverted yield curve occurs                      unprofitable and forcing them to cut down         kets Dry Up as Volatility Rattles Investors
when a short-term Treasury bond has a                           on their lending. This will likely trickle        mentioned that not a single company in the
higher yield than a longer-term bond. The                       down to reduced business investments              US had borrowed money through the high-
most commonly watched yield curve is                            and hiring as businesses won’t be able to         yield corporate bond market in December
between the two-year and 10-year bonds.                         access capital from banks. If such an envi-       2018 at the time of the writing. It would be
Yield curves in general represent the yields                    ronment persists, the US economy will slip        the first time since November 2008 that no
on US Treasurys with different maturities.                      into a recession. It is important to remem-       high-yield bonds were issued in the market,
Short-term yields are heavily influenced by                     ber that the statistic that specifically refers   further illustrating the uncertainty in the
the Fed’s actions, while long-term yields                       to an inversion is the spread between the         markets.
are more heavily influenced by the market’s                     two-year and 10-year Treasury bonds. The
longer-term view on economic growth. The                        alarm in the markets in December 2018 was         The yield curve should not be ignored com-
Treasury yield curve, therefore, is often a                     caused by the inversion of the two-year and       pletely, but it important to weigh all the risk
proxy for investor sentiment on the direc-                      three-year Treasury bonds and the five-           factors cautiously and find opportunities in
tion of the economy.                                            year Treasury bond. According to the afore-       the mix. Rising interest rates usually trans-
                                                                mentioned CNBC article, the three-year            late to rising cap rates and, thus, declining
A CNBC article titled Why Investors Near                        and five-year Treasury yield curve inverted       property prices. In general, higher interest
Retirement Should Fear the Big Yield Curve                      an average of 26.3 months before the reces-       rates also mean that investors will have to
Inversion further summarizes the issue and                      sion in the last three recessions.                make higher interest payments on their
explains why an inverted yield curve makes                                                                        debts. We believe that the yield curve will
investors nervous. A 10-year Treasury bond                      The three-year and five-year yield curve          likely widen through 2019, but remain at
usually pays a higher interest rate than                        inversion may be foretelling that a recession     low levels. Investors should be vigilant
a two-year Treasury bond to compensate                          is imminent; however, a yield curve is not        about their loan-to-value (LTV) ratios,
investors for the risks associated with a lon-                  a singular factor that moves the economy          income growth projections and whether
ger holding period. The difference between                      from growth to recession overnight. Yield         their income growth will be able to service
these two bonds is called the spread. If the                    curves tend to move slowly, and investors         their debt. This may mean negotiating lease
spread is greater than zero, the yield on                       should view the inversion as a process            renewals now when the economy is still
the 10-year bond is higher than the yield                       rather than an event. The yield curve has         healthy and refinancing the loans at a lower
on the two-year bond. Under this circum-                        been flattening for a few years, but the econ-    rate while it is still available.
stance, the spread between these two bonds                      omy has kept humming along. Many factors
will create an upward-sloping yield curve.                      have counteracted the effect of the yield         CYCLICAL AND STRUCTURAL CHANGES
However, when the spread is negative, the                       curve on the overall economy, including the
two-year bond has a higher yield than the                       tax cuts, a strong labor market and robust        Uncertainty is playing a major role in today’s
10-year bond, and the yield curve inverts.                      consumer confidence.                              economy — and the investment world — and

6   ©2019 Deloitte Development LLC, NATIONAL ASSOCIATION OF REALTORS®, Situs RERC. All Rights Reserved.
EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 / Uncharted Territory

this uncertainty is expected to continue         CRE INVESTMENT                                     Frank (NKF) in its 3Q 2018 US Capital Mar-
through 2019. The key is being able to differ-                                                      kets Report, which found that Canadian
entiate between the cyclical and structural      While the pressure on value is of some con-        firms continue to invest the most in United
parts of the CRE market.                         cern for investors, volumes are still pretty       States real estate, with multibillion-dollar
                                                 strong and private equity players seem to          entity-level purchases, such as the $15 bil-
Throughout this report, the authors will         be active. There is more dry powder than           lion Brookfield acquisition of GGP. France
present analysis and outlooks primarily          ever before. The amount of dry powder ear-         and Singapore took the second and third
regarding the cyclical, or market forces, of     marked in private equity real estate funds         spots, respectively. Combined, these coun-
CRE. For instance, since the recovery began,     reached an all-time high of $180 billion           tries made up almost 64% of the interna-
private CRE prices, as measured by the Real      as of September 30, 2018, with $70 billion         tional capital distribution in the 12 months
Capital Analytics Commercial Property            allocated to North America-focused funds,          ending in 3Q 2018. The same NKF report
Price Indices (RCA CPPI), have exceeded          according to an NREI article, Will CRE             states that foreign lenders, faced with price
their pre-recession peaks for all property       remain a favored investment alternative in a       compression in their home countries, have
types, except retail. According to research      volatile market?                                   turned to higher yielding loans in the US.
by Situs RERC, solid property fundamen-                                                             Canadian firms such as TD Bank, CIBC, RBC
tals are underlying strong valuations and        The Deloitte Commercial Real Estate Outlook        and Bank of Montreal in particular have
these valuations are supporting high prices.     also highlights the growing global inter-          become the top foreign lenders, with over
Favorable economic conditions, including         est in CRE. The majority of institutional          $64 billion in US loans.
historic employment gains, are expected to       investors surveyed for this report plan to
allow further room for rent growth.              increase their capital commitments to CRE          Some public REITs, however, are trading at
                                                 in the next 18 months. Respondents from            less than active value, particularly malls
In addition to the short-term cyclical           the United States plan to increase their cap-      and hospitality areas. Many of the success-
changes in CRE, long-term structural             ital commitments by 13% in this time frame,        ful malls and retailers tend to be held by
changes are affecting CRE investment strat-      while those in Germany (13%) and Canada            investors and REITs for the long term and
egies as well as the CRE industry itself.        (12%) show similar levels of interest. In          are infrequently on the market. Accord-
The question becomes, how much will the          terms of inbound capital, the United States        ing to the 2019 REIT Economic Outlook by
structural parts of CRE — the return char-       is the most preferred CRE market globally,         Nareit, investors in the past few years have
acteristics, the hard assets’ costs going        followed by Hong Kong and China. Canada            been preoccupied with tech stocks and ven-
up — absorb the cyclical impacts that are        is the biggest foreign investor in the US          ture capital, and REITs have become under-
expected to eventually happen in the cap-        real estate market in the last 12 months, led      valued; investors finally started noticing
ital markets and the economy? For exam-          by Brookfield. There has also been a lot of        the advantages of REITs in October 2018.
ple, could structural changes support a          activity on the debt side. Asian investors,        Through mid-December, REIT returns for
strong rise in inflation? An estimate by Lib-    especially South Koreans, have been very           2018 were 2.6% – better than the stock
erty Street Advisors, posted on the Federal      interested and have structured numerous            market but unimpressive. However, NOI
Reserve Bank of New York’s website, is that      big deals in debt positions in the last six to     from REIT-owned properties is growing;
that the overall consumer price index (CPI)      12 months.                                         same-store NOI has grown 2.82% over the
is 0.3 percentage points higher due to the                                                          past four quarters, according to Nareit’s
imposition of tariffs.                           The increase in global capital flows is sup-       T-Tracker®. Nareit found that the average
                                                 ported by research from Newmark Knight             occupancy rate at REIT-owned properties is

                                                                                                                                                   DENVER

                                                                                                                              CHAPTER 1 INTRODUCTION 7
94.29%, the highest percentage since data                               the biggest drivers of structural change in
CHICAGO                                                           began being collected in 2000, and that the                             the near future. Below, the authors of this
                                                                  occupancy rate for REIT-owned retail prop-                              report explore some of the ways that tech-
                                                                  erties is 95.43%. REITs are set up to perform                           nology will likely shape the property types.
                                                                  well in the near future, thanks to current
                                                                  valuations and underlying operating fun-                                As the last of the millennials (generally con-
                                                                  damentals; investors are looking for value.                             sidered those born from 1981 to 1996) start
                                                                                                                                          entering the workforce, office landlords,
                                                                  CRE MARKET9                                                             tenants, construction companies and all
                                                                                                                                          employers should — more than ever — con-
                                                                  The CRE market is fully priced generally,                               sider their needs. Millennials are obviously
                                                                  especially for core property types. Even as a                           not a monolithic group, but surveys have
                                                                  record amount of capital continues to pour                              shown they prefer to work in offices with
                                                                  in, the market has reached maturity. There                              open floor plans to those with cubicles and
                                                                  still are sellers and buyers despite being so far                       private offices. These preferences, combined
                                                                  into this recovery. However, as we enter into                           with the rapid changes in technology, are
                                                                  the peak and/or potential correction area, it is                        forcing investors in CRE to be more creative.
                                                                  important to understand that the double-digit                           Landlords need to offer spaces with sleek
                                                                  unleveraged returns enjoyed during the                                  designs and state-of-the-art technologies
                                                                  beginning of the financial recovery are a thing                         that produce a “wow factor” to attract new
                                                                  of the past, and the market understands that.                           tenants. In addition, in part due to changes
                                                                                                                                          in technology and tastes, more people are
                                                                  According to the Bureau of Economic Analysis                            working remotely. As a result, many offices
                                                                  (BEA) advanced estimate, personal consump-                              are using less square feet per employee – but
                                                                  tion expenditures increased by 4% quarter                               companies will probably still need central
                                                                  over quarter (QoQ) in 3Q 2018. With approxi-                            spaces for their employees. Office tenants,
                                                                  mately 68% of the nation’s GDP coming from                              however, will likely want more tech options
                                                                  personal consumption expenditures, higher                               in their buildings – smart devices, employee
                                                                  wage growth and increased consumer confi-                               tracking systems, fiber internet, etc. Some of
                                                                  dence are an integral part of the US economy.                           these may be very costly to update in older
                                                                  Increased consumer spending will support                                buildings, inspiring the continued need for
                                                                  certain segments of the retail sector that are                          new developments. WeWork, Knotel and
                                                                  struggling. Higher wage growth may impel                                other flexible office providers will continue to
                                                                  discouraged workers to leave the sidelines                              grow over the next year, according to an arti-
                                                                  and raise the labor force participation rate —                          cle in The Real Deal titled Co-working Goes
                                                                  which has been stagnant despite the excep-                              Corporate. New technologies inspire entre-
                                                                  tionally low unemployment rate — and boost                              preneurship; as the number of startups and
                                                                  demand for office space. Higher wages will                              entrepreneurs grow, the demand for flexible
                                                                  also support apartment sector rent growth,                              work spaces should grow as well. Flex spaces
                                                                  which is already being buoyed by lowered                                often have top-notch amenities that can help
                                                                  housing affordability and rising mortgage                               business attract workers without having to
                                                                  rates, especially for first-time buyers. More                           invest in their own real estate upgrades. Flex
                                                                  spending will likely also translate into more                           leasing options are likely to become more
                                                                  demand for industrial space as consumer                                 popular as the flex office sector grows. Flex
                                                                  tastes for shopping through e-commerce                                  leasing options allow tenants to sign leases
                                                                  increases the need for order processing and                             by the year, month or sometimes even the
                                                                  delivery centers.                                                       hour (when five to 10 years has historically
                                                                                                                                          been the norm), according to a Bisnow article
                                                                  IMPACT OF TECHNOLOGY*                                                   titled LiquidSpace Report Highlights Rise of
                                                                                                                                          Flex Office Space. We can expect the changes
                                                                  Technology is transforming every prop-                                  to accelerate as Generation Z workers enter
                                                                  erty type and the industry as a whole. As                               the workforce. They have needs and prefer-
                                                                  advances in technology continue to grow                                 ences of their own, and they are expected
                                                                  at an exponential rate, they will likely be                             to account for 32% of the global population

                                                                    The viewpoints represented in this section represent the collective perspectives of the authors of this report and may not represent the
                                                                  9,*

                                                                  viewpoints of the sponsoring firms as a whole.

  8   ©2019 Deloitte Development LLC, NATIONAL ASSOCIATION OF REALTORS®, Situs RERC. All Rights Reserved.
EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 / Uncharted Territory

in 2019, a larger percentage than all other                             facilities, bowling alleys and the like. Many
generations, according to an August 2018                                retailers are cutting down their space, mov-                                                                LOS ANGELES
Bloomberg article titled Gen Z is Set to Out-                           ing their inventory to warehouses because so
number Millennials Within a Year.                                       many consumers prefer to shop online and
                                                                        get their products shipped directly to their
In the industrial sector, e-commerce will                               homes. Retailers have also been challenged
likely continue to gain popularity with                                 by growing income inequality. According to
consumers and industrial CRE will have                                  the Deloitte report The Great Retail Bifurca-
to adapt to changing space requirements.                                tion10, only 20% of consumers had improved
Advances in supply chain management are                                 their financial situations from 2007 to 2016,
likely to lead to additional changes. End-to-                           leaving them with little money left for dis-
end supply chain is becoming more chal-                                 cretionary income spending. In addition,
lenging and complex, as customers want                                  technological changes have forced many
their shipments faster. The focus on “first                             of those less well-off to spend significantly
mile” delivery (i.e., the process of getting                            more on digital devices than they had pre-
goods from a manufacturer or retailer to a                              viously, leaving less money for other types
distribution center) and “last mile” deliv-                             of purchases. It’s not surprising, therefore,
ery (i.e., the process of getting goods from                            that the companies that have performed
a distribution center to the end consumer)                              the best during these times have been those
changes space requirements. Industrial                                  that appeal to “premium” consumers and
properties will need to be able to accommo-                             “priced-based” consumers, while the “bal-
date technological advances in inventory                                anced” retailers have struggled. Even though
and network optimization tools, warehouse                               the store closings of the balanced retailers
management and yard management. Indus-                                  have received the most attention, price-
trial assets will continue to be tied to the                            based and premium retailers are opening
cost efficiencies in transportation, includ-                            more stores than they’re closing.
ing the infrastructure requirements of driv-
erless trucks. Improvements in methods like                             Housing affordability in many major mar-
3-D printing and the use of delivery drones                             kets, combined with slow wage growth and
could create leaner supply chains and tran-                             high student debt, has forced many indi-
sition manufacturing facilities closer to                               viduals, especially millennials, to rent out
major population centers, despite the scar-                             of necessity. Up until recently, millennials
city and high costs of developable land near                            have postponed household formation and
major arteries. We expect that data centers,                            child bearing, which has also helped fuel
especially those that can meet the infra-                               demand for apartments in the recent past. A
structure and space needs of cloud-based                                survey conducted by Situs RERC in 2Q 2018
companies, will continue to increase in                                 found that just over 60% of current renters
popularity. The full impact of tariffs on the                           cited financial obstacles to homeownership
manufacturing industry has yet to be seen,                              as the primary reason that they rent instead
but we anticipate that a rise in new business                           of own. A significant share of renters would
formation of small manufacturing compa-                                 prefer to own a home, but have been unable
nies that sell their goods via e-commerce                               to purchase one because they can’t afford it
will stoke demand in the flex sector in 2019.                           or meet the mortgage finance requirements.
                                                                        At the same time, baby boomers are further-
Advances in technology have also had a                                  ing apartment demand as they age out of the
profound effect on the retail industry – pri-                           workforce and move into rental units. Chang-
marily the rise of e-commerce. The retail                               ing demographics and economic trends will
landscape is littered with large chains that                            likely impact the apartment sector for years
have either gone out of business, declared                              to come. The economic situation is finally
bankruptcy or find themselves in extreme                                starting to improve for many consumers, who
peril. The survivors — including some of                                have struggled since the financial crisis. Mod-
the largest malls — have adapted by making                              erate wage growth has finally emerged, and
the shopping experience more fun, adding                                it’s hoped to be strong in 2019. At the start of
more restaurants, theaters, rock-climbing                               2019, more millennials were starting families

 For more information, download the full Deloitte Insights report, The Great Retail Bifurcation: Why the Retail “Apocalypse” is Really a
10

Renaissance, visit https://www2.deloitte.com/insights/us/en/industry/retail-distribution/future-of-retail-renaissance-apocalypse.html

                                                                                                                                                                      CHAPTER 1 INTRODUCTION 9
and moving to suburban areas, which offer                        THE DELOITTE 2019 COMMERCIAL                   TECHNOLOGY
greater affordability and more space, sim-                       REAL ESTATE OUTLOOK7
ilar to previous generations. The Colling-                                                                      The CRE industry is playing catch-up in
wood Group, a Situs company, projects a                          In addition to the structural changes          technological advancement compared to
dramatic expansion of household creation.                        that should likely continue to transform       other industries. The industry needs to
Over the next five to eight years, millenni-                     tenant demands and the use of assets,          update its digital strategy and infrastruc-
als are projected to create roughly 25 million                   several trends are expected to change the      ture. Data from this Deloitte outlook report
new households, yet we will likely not see                       CRE industry itself and the strategies that    indicate that institutional investors wish
homeownership return to the levels seen                          firms can leverage to better adapt to these    to see an increase in the use of predictive
in the late 1990s and early 2000s. As of 3Q                      changes.                                       analytics and business intelligence in order
2018, the homeownership rate was 64.4%,                                                                         to make their buildings future ready and to
far below the historical peak of 69.2% in 4Q                     GLOBAL CAPITAL FLOWS                           better utilize IoT in the design and redesign
2004, based on data from FRED. We antic-                                                                        of buildings.
ipate that structural changes such as the                        Business models are shifting in the CRE
ones mentioned above will keep the home-                         industry even as the economy stays strong.     CRE companies should consider being more
ownership rate near the long-term average                        In order to maintain capital commitment        proactive in embracing technology. Their
of 65%, which will benefit the apartment                         and investment, Deloitte suggests invest-      digital core should be more dynamic, auto-
sector. Alternative housing, such as sin-                        ing in new and emerging business models        mated and easily integrated with emerging
gle-family rentals and communal-style                            that reflect the changing nature of work and   solutions. Much of this technology can take
living, is expected to become more com-                          tenant preferences. This involves invest-      advantage of external cloud-based services.
monplace in the real estate sector, based on                     ments offering flexible and varying leasing    Machine learning and other predictive ana-
survey data from Situs. Seen as an evolution                     options, as well flexible spaces.              lytics can help generate valuable insights
of the on-demand accommodations provided                                                                        from large data sets, allowing for an easier,
by platforms like Craigslist and Airbnb,                         Mixed-use, data centers, senior housing and    faster and more informed business deci-
startups such as Common and WeLive are                           mobile towers are all potentially beneficial   sion-making process.
pioneering a business model around luxury                        to include in a portfolio. Portfolios should
buildings with full amenities and a more flex-                   include experimental and engaging prop-        CYBER RISK MANAGEMENT
ible, short-term approach to rent. This type of                  erties that focus on the tenant and make
living arrangement offers a more affordable                      use of augmented reality (AR) and virtual      Traditional CRE risk management centers
and convenient way for individuals to live in                    reality (VR) technology to interact with       around interest rates and financing risk,
large metro areas without sacrificing ameni-                     potential tenants. Internet of Things (IoT),   but as the use of technology increases,
ties. And while rents will likely be the ongo-                   artificial intelligence (AI), and predictive   the scope of risk expands. This can lead to
ing major driver of apartment demand, renter                     analytics technology can be valuable to suit   increased concerns about information and
tastes for smart technology and cutting-edge                     and anticipate tenant needs in order to get    data privacy, including potential holes in
appliances in units will be a major asset dif-                   and retain valuable client bases for each      safe IoT integration.
ferentiator in the future.                                       property.

10   ©2019 Deloitte Development LLC, NATIONAL ASSOCIATION OF REALTORS®, Situs RERC. All Rights Reserved.
EXPECTATIONS & MARKET REALITIES IN REAL ESTATE 2019 / Uncharted Territory

                                                                                                                                                DALLAS

The scope of risk is expanding with the           presence should help attract new talent.           the highest number of respondents — 34.8%
increased use of technology in the industry,      Knowledge-transfer programs can help               — believed that the CRE market was expe-
so companies should plan accordingly. CRE         retool existing talent and help create a cul-      riencing a gradual slowing of deal volume
boards and members of senior management           ture of lifelong learning. Making efforts to       and price increase. Only 2.7% of the respon-
should get involved in governance and over-       teach inclusion, connection and mentorship         dents believed that the CRE market would
sight. They should create policies to deal        can also help women and minority popula-           experience a deceleration in 2018, compared
with emerging issues, designate roles and         tions prepare for leadership roles.                to 3.9% in 2017. Respondents were split
responsibilities, create consistent reporting                                                        between anticipating minimal change (-2%
and tracking methods, and budget accord-          THE 2018 DELOITTE DBRIEF                           to +2%) and moderate improvement (+2% to
ingly. There should be constant communica-                                                           +5%) in CRE values over the next 12 months,
tion about emerging risks, and all employ-        For the past seven years, the authors of this      similar to responses in 2017.
ees should be trained and aware.                  report have conducted a webcast, known
                                                  as Deloitte Dbrief, to showcase the results        About 37% of the respondents believed that
TALENT                                            of our report. Each year, we poll the web-         multifamily assets would offer the most
                                                  cast participants to gauge their sentiment         favorable investment opportunity based on
The workforce is changing and talent strate-      about the market. The 2018 Dbrief poll was         recent performance of fundamentals, the
gies are constantly evolving. Most Gen Z and      conducted on January 30. The number of             largest percentage among the property types.
Millennial workers prefer a startup culture.      responses for these survey questions ranged        However, the endorsement of multifamily
The industry seems to be struggling to recruit,   from 1,779 to 2,475. See Exhibits 1-B through      declined by 10 percentage points year over
engage and retain this new pool of talent,        1-F for charts of the poll results.                year (YoY). The largest yearly increase among
according to the Deloitte 2019 Commercial                                                            the property types was for industrial/ware-
Real Estate Outlook. As a result, many CRE        The 2018 Dbrief poll participants showed           house, deemed favorable by approximately
companies face a scarcity of skilled employ-      increased confidence in the state of the econ-     20% of the respondents, up from about 14%
ees. In addition, many companies are unpre-       omy and a relatively optimistic view of the        in 2017. Hotel offered the least favorable
pared to deal with the high number of baby        CRE market. About 20% of the respondents           investment opportunity, with only 4% of the
boomers expected to retire in the coming          believed that the economy would hit on             respondents preferring the asset class.
years. The survey also notes that the majority    all cylinders in 2018, compared to 13.1% in
of respondents believe that a more diversified    2017. Additionally, 41.5% of the respondents       Dbrief participants believed that the capital
board helps generate better returns.              believed that the economy would continue to        availability for CRE in 2018 would remain
                                                  grow in a slow to modest pace in 2018, compa-      comparable to that of 2017. About 30% of
Companies can use technology to screen            rable to 42.1% of the respondents in 2017.         the respondents believed that the standards
resumes and spot risk for turnover. They                                                             and availability would remain the same in
should highlight social responsibility and        In terms of the CRE market, about 19% of           2018 compared to 2017. The percentage of
community engagement opportunities                the respondents believed that robust trans-        respondents suggesting they would seek
when reaching out to younger generations.         action volume and price appreciation would         riskier positions declined from 29% in 2017
Strong branding and a robust social media         continue in the CRE market in 2018, while          to 24.8% in 2018.

                                                                                                                               CHAPTER 1 INTRODUCTION 11
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