CHICAGO—The political world may seem turbulent, but real estate experts point out that all the headline noise of 2017 did not have any visible impact on capital markets. Therefore, many conclude that 2018 will see more of the same, with balanced fundamentals and long-term secular trends driving a steady performance.
Researchers from Chicago-based LaSalle Investment Management, for example, have just released their annual report on investment strategy, and predict that the economy will continue expanding at a steady pace, with job growth generating a robust demand for real estate. But they advise the construction of portfolios that balance “goldilocks” and “bear” scenarios.
“With buoyant capital markets, strengthening economies and the steadily rising demand for real estate in investment portfolios, 'Goldilocks' conditions are what real estate investors can expect in 2018,” says Jacques Gordon, global head of research and strategy at LaSalle. “North American property market fundamentals continue to experience strong, positive momentum, thanks to demand-side growth that is keeping pace with an active supply pipeline.”
However, political controversies could still create obstacles to further progress. “Uncertainties still exist surrounding tax reform, healthcare reform, trade treaties and foreign policy,” he adds.
Still, the US will most likely continue creating new jobs at a sufficient pace. And LaSalle also expects that debt will be plentiful in 2018, even though lenders will remain conservative in underwriting. Normal market conditions should persist, but lenders won't have some of the hurdles of 2017, including the maturity of 2007 vintage loans.
“Jerome “Jay” Powell, the next chairman of the Federal Reserve, is expected to continue his predecessor's careful path toward gradually tightening monetary policy,” according to the LaSalle report. “There is a risk that long-term interest rates increase faster than the market or Fed expect, which could lead to stock market declines and incentivize investors to rebalance their portfolios away from real estate. More likely, the rapid rise in stock prices in 2017 will lead to additional real estate allocations in 2018.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
