Real Estate Sector After the First Half of 2018

In the first half of 2018, the real estate sector had modest returns, trailing the performance of the S&P 500. Fundamentals remain strong along with liquidity, and we see no imminent sign of a downturn for the remainder of 2018. Despite our optimism, there are a few potential headwinds that we are watching including a decrease in transaction volume, higher interest rates, higher labor costs impacting capital budgets, and continued asset selling by pubic REITs. 

Take What the Market Offers

Our belief is that investment returns are significantly driven by macro factors such as inflation, economic growth, credit cycles, the level and direction of interest rates, equity multiples, and cap rates. We, at times, need to make minor adjustments to our strategies to ensure we are making the most of what the market offers.

Longer-Term GSA Leases May Increase Property Values

Longer-term leases tend to benefit both GSA tenants and property owners. A typical GSA tenancy is more than two decades long whereas an average lease is 10 years, with 5-year extension options being typical.  Structuring a longer-term lease that more closely matches GSA tenancy can result in cost savings through lower rents. Property owners, in turn, may experience higher property values due to more stable occupancy, potential reduced costs, and potential better financing terms.