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The real estate industry — perhaps more so than any other major industry — is inevitably tied to the highs and lows of the global economy. As the industry survives and thrives through the inevitable cycles, it is impacted by direct and indirect trends and issues. For example:
- Despite record low interest rates, tough underwriting practices and lingering unemployment concerns have led to continued weak home sales, thereby benefitting the rental market. While this leads to a rise in rents in some markets, it aids residential REITS and other multifamily owners due to occupancy rates, and potentially also steers a large portion of construction opportunities. As a result, the apartment sector is seeing a great deal of interest from investors and developers.
- Distressed acquisitions have provided much of the opportunity for investors, particularly in the office sector. Although the deal activity compared to prior years may be tapering off as the distressed pipeline clears, this remains an area ripe for transactions.
- With national vacancy rates continuing to edge downward over the past two years, the retail leasing market sees less dependence on rent reductions in favor of options like build-out provisions or improvement allowances, particularly for established national retailers.
- REITs remain a bright spot, with relatively high available capital due to continued investor interest in dividend opportunities and generally well-received offerings over the past year. Bolstered by both good capital reserves and low interest rates, REITs are active players in virtually every sector of the industry, particularly in residential and marquee office properties in 24-hour markets.
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