In preparing this article, I reference two previous New York Real Estate Journal articles dating back to December 2010 and March 2012, which in certain instances reflect where market conditions are heading in 2019. Question, “is the glass half empty or half full?” The start of 2019 and end of 2018 highlighted volatility in the socio-political arena, economic, financial and equity markets, trade war deficits, fluctuating oil prices, Fed rate hikes, Sovereign stability “deal or no deal” – EUC and Brexit, along with an aging population all point to lower forecasts in most sectors for 2019.
In terms of the U.S. stock and equity markets, the last quarter of 2018 posted 10 - 20% declines in the S&P 500, Nasdaq Composite, and Dow Jones with certain Faangs sectors posting declines of 25 - 35%. Do these indices reflect a “correction or crash” pointing to a recession fueled by rising interest rates, the ongoing gridlock in congress and the trade war with China?
Consumer interest rates across all sectors; prime, home mortgages and lines of credit have escalated with Treasury yield spreads approaching an inverted yield curve between short term and long term Treasuries. The Fed’s four rate hikes in 2018 increased the Federal Fund rate from 1.75% in March 2018 to 2.5% in December 2018. Conversely, a more cautious approach has been voiced by the Feds due to downshifts in economic output, GDP stagnation and trade war tensions.
Other factors are the continued trends in the retail sectors including the recent 2018 bankruptcy filings by Sears, followed by Toys “R” Us, Subway, Mattress Firm, Rite Aid and Brookstone to name a few. In fact, there have been over 57 retail bankruptcy filings since 2015 influenced by mounting debt and lack of adaptability to adjust to the Amazon and discounted pricing models.
Close to home, stable job growth and a broad employment base has contributed to positive growth in most sectors especially within the New York City markets. Apartment and office demand should continue to experience rental growth and absorption especially with the recent announcement of Amazon HQ2 destination in Long Island City with their multibillion dollar plans for a four million sf headquarter in the Anable Basin area.
Other notable trends include Google’s $2.4 billion acquisition of Chelsea market and their recent move to Hudson Sq. and planned $1 billion expansion. Hudson Sq. and co-working platforms such as We Work with over 10 million s/f of office space leased lends to the attraction of New York City as a tech based city. Moody’s acquisition of Reis and partnerships with other technology based platforms dubbed Moody’s Analytics will change the valuation and reporting models of real estate. The emerging technology trends and their transformation of information platforms such as CoStar and CompStak, and brokerage firms - Compass, Zillow, Realogy Holdings, Redfin and Opendoor will continue to transform the real estate reporting, information and business platforms. Add the innovations of Artificial Intelligence, Quantum computing, Cybersecurity and risk management.
As part of the 2018 Tax Reform program, the emergence of Opportunity Zones and development funds including 53 funds that are now, or soon to be operating with a strong focus on commercial real estate and affordable housing developments. These Opportunity Zones will offer deferred tax shelters for many investors while providing gentrification within certain neighborhoods or districts which qualify.
2019 can be characterized like Dicken’s “Tale of Two Cities” and will prove to be a year of transformation on many fronts. Solid property fundamentals, strong employment gains, abundance of available capital, and favorable long term interest rates should provide a stable economic profile in terms of CRE investments, GDP and employment growth with no near term “tailwinds” of a recession or notable economic downturn.
Richard DiGeronimo, MAI, SRPA, AI-GRS, CRA, CVC, is president and founder of R.D. Geronimo Ltd., Mineola, N.Y.