As we settle into the new year, questions surrounding the state of the market, tax reform, and city regulations are impacting plans for our investments. What can we expect?
We reviewed Colliers’ State of the U.S. Market and 2018 Outlook for the top five market and economic drivers that will shape our year:
The U.S. economy showed resilience in 2017, and we expect continued growth in 2018. Although growth has been moderate this cycle, it has been consistently positive for nearly 100 months.
- The International Money Fund says the economy grew 3.2% in 2016 and 3.6% in 2017, and predicts 3.7% growth in 2018. This marks the fastest growth since 2010 and is tied to growing manufacturing and trade.
- The U.S. is a self-sufficient economy with exports accounting for just 12% of GDP; however, strong global growth will provide more demand for U.S. produced goods and more opportunity for local growth.
2. Construction Boom
Multifamily construction across the nation is expected to peak in 2018, while Seattle’s apartment construction boom will likely peak in 2019.
- Due in part to construction labor shortages, deliveries nationwide did not crest in 2017 as predicted, pushing the supply peak to 2018.
- Apartment leasing fundamentals in Seattle will recover yet again from the seasonal slump. Additionally, there is still more than 45 million square feet of leased office that will fill upon completion — expect robust business services and STEM job growth to continue year over year.
- While apartments remain the most popular asset class for investment this cycle, the surging supply pipeline has spooked some investors, leaving opportunity for stabilized core investors looking for new product in great locations.
3. Tax Cuts & Jobs Act
At the end of 2017 the U.S. received a much needed, modest boost from the Tax Cuts and Jobs Act, which will begin to take shape in 2018.
- The primary stimulus will come from unfunded tax cuts.
- The business sector is poised for faster growth from lower tax rates and more favorable treatment of investment.
- GDP growth forecasts for 2018, as compiled by Census Economics, average 2.5% — a 56% increase over 2016 growth.
4. Wage Growth
Nationwide wage growth remains anemic despite the tight labor market conditions, resulting in slower consumer spending.
- Seattle continues to outpace nearly every market in the U.S., with +7% compensation growth in 2017.
- Although there are cities across the country that are still recovering from the great recession, Seattle surpassed its last employment peak by September 2012!
- Four out of four of the largest market cap companies in the world have offices in the Seattle region. Amazon and Microsoft are headquartered here, and Google and Facebook are on their way to making Seattle home to their second-largest office presence outside of Palo Alto.
5. Markets Remain Robust
Overall outlook and implications for U.S. property investment markets will remain historically robust.
- The considerable stockpile of investor dry powder will seek out deals in suburban submarkets and secondary metros.
- Rising interest rates may finally start to have a material impact on property acquisition costs and development financing.
Whether you’re planning to sell or hold your property in 2018, we encourage you to contact us to discuss how this year’s outlook will impact your investment.
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The full State of the U.S. Market and 2018 Outlook is available here.