The United States hotel industry has been operating at peak levels for the past three years, and CBRE researchers said that this year won’t stray from that trend. What’s more, sales volume for hotels should look much like last year’s levels. Additionally, CBRE expects overall returns on hotels to be the highest of any commercial real-estate sector over the next three years. And even rosier, the firm does not expect a recession this year.
Much confidence is coming from a U.S. economy that appears to be holding steady, albeit down slightly due to impacts from tax cuts, according to research conducted by CBRE in its “2019 U.S. Real Estate Market Outlook.” Gross domestic product is forecast to grow 2.7 percent in 2019, which is only slightly lower than 2018’s growth of just under 3 percent. That level is still above the GDP growth average the U.S. has seen from 2014 through 2017 (nearly 2.4 percent). Many economists consider the ideal GDP growth rate to be between 2 to 3 percent.
Here are some things to keep in mind we move through the year.
A strong economy is likely to support a strong argument for interest rates to continue to rise this year. That means we could see gradual, moderate increases in long-term rates, according to CBRE.
However, it’s important to note that the Fed paused its recent anticipated interest-rate increase due to a weak fourth quarter last year and global uncertainty. Those increases are likely to resume later this year despite moderating U.S. inflation, according to speakers during a recent flash call with CBRE, “2019 CRE Outlook: Opportunities in a Volatile and Late-Cycle Market.” Analysts expect that the U.S. will see two more interest-rate hikes this year.
Related Story: Opportunity zones: complex rules, major benefits
CBRE anticipates that the 10-year Treasury yield will be at about 3.4 percent in 2019, compared to about 3.1 percent in 2018. By comparison, the average for years 2014 through 2017 stands at nearly 2.5 percent.
Consumer Confidence Remains High
“We’ve got very confident consumers, particularly in America, and we’ve got a business environment which is very favorable to investment, so all of those things add up to a really good year for growth,” said Richard Barkham, chief economist, global and head of Americas research at CBRE, in a video describing this year’s real-estate market outlook.
But wages go hand in hand with consumer confidence, and there’s always more to the story. A spike in wages, along with higher import prices thanks to tariffs, could lead to pressure on inflation, according to CBRE’s outlook.
CBRE forecasts the Consumer Price Index inflation rate to be at about 2.2 percent in 2019, slightly lower than 2018’s level. By comparison, the CPI inflation rate average for 2014 through 2017 is about 1.4 percent.
Attention Focuses on Secondary Markets
In January of this year alone, the volume of deals brought to the market significantly outnumbered the previous-year period in all asset classes of commercial real estate, according to CBRE. While there was a slight gain in cap rates during the month, the firm said that more investors are looking to make their returns based on income in 2019 versus capital appreciation.
Analysts said that investors will be looking to secondary markets more than ever this year as they search for yield. However, a strong U.S. dollar remains a risk because it increases the hedging costs of foreign investors coming into the states, particularly from the European Union.