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DECEMBER 24, 2018 • HARTFORD BUSINESS JOURNAL | 7 REAL ESTATE Expect higher interest rates, rents; Boomers, Millennials shift housing market By Gregory Seay gseay@hartfordbusiness.com W ith Connecticut's economy still posting mixed results, commercial and residential realty pros are hedging some of their bets when it comes to 2019 outlooks. While certain about several economic and industry trends ahead, they harbor concerns, notably about the direction of interest rates and their resulting impact on the economy, particularly in demand for commercial development and home sales. Another worry is the demographic shift underway in this state and across America in which aging Baby Boomers are rethinking their housing needs in favor of renting smaller dwellings. Meanwhile, their Millennial offspring are too transient or saddled with student-loan debt to afford a home. On the commercial side, landlords are at the mercy of office tenants, who need less space due to telecommuting and co-working trends. The Hartford Business Journal reached out to three Greater Hartford real estate professionals — Realtor Dale Stevens, of RE/MAX Destination and president of the Greater Hartford Association of Realtors; Frank Amodio, principal, Amodio & Co. Real Estate; and Joel Grieco, executive director, Cushman & Wakefield — and asked them to share their Connecticut real estate outlooks for 2019. Here are their top issues to watch: Higher interest rates will impact homebuying Stevens: In the coming months, as the Federal Reserve raises interest rates to keep inflation in check, the big question becomes: Will mortgage rates climb higher? If that happens, we may see a decline in homebuying. Those potential homebuyers that are sitting on the fence would likely wait until they see what the market does, which could stall the market. The good news is that lenders seem to be loosening their standards for mortgages again. I think borrowers with decent credit are getting financed more easily. Office tenants will see higher rents Grieco: Office rents are expected to continue a slight upward trend in Hartford County in 2019. Rents increased in the Hartford area, as they did for the entire North- east region in 2018. ... However, despite the slight upward tick in rental rates, the balance of power remains with tenants in lease negotiations. Landlords have been adding amenities to help distinguish themselves, or to keep pace with others. … It is worth noting that tenants around Hartford County have benefitted from comparatively low and flat rental rates for decades, while landlords' operating expenses and interior construction costs have risen. This dynamic is unsustainable, and rents will necessarily need to rise absent a mass exodus of employers. Changing retail spaces Amodio: For survival, even the top brick-and-mortar retail properties need reasons for customers to visit, which could include medical and educational uses. Growth in e-commerce and the change from brick-and-mortar to online shopping is creating a growing demand for industrial space. As developers continue to add to the pipeline, investors will snap up new distri- bution and warehouse properties. Look for large industrial property sales made to institutional investors, [real estate investment trusts] and funds. Brick-and-mortar stores are here to stay but the question is how much retail space use will continue to shift to e-commerce. Technology will impact all real estate Stevens: As we've seen in the past decade, technology plays a huge role for those looking to buy or sell a home. … I think you'll see more vir- tual home tours and drone use as the industry accommodates to more tech-savvy buyers and sellers. The National Association of Realtors recently released the '2018 Pro- file of Home Buyers And Sellers,' which found that 44 percent of recent buyers looked at properties online first. Amodio: Adding technology can also help improve tenant retention and therefore improve property values. Commercial real estate develop- ers and owners can use a combination of augmented and virtual reality, called 'mixed reality,' to allow potential tenants or buyers to visualize the new property using 360-degree immersive experience. Matterport is a well-known vendor in this space. This can also help to reach potential clients across the globe. Catering to Boomers, Millennials Stevens: The upcoming year has potential to be a positive one for over-55 communities. This might be the only area of increased new construction. Amenities, activities and more livable square footage are all attractive aspects to this type of housing. An aging population could also spur a growth in inventory. A shift to these commu- nities could open up an inventory of homes in need of updates, for those willing to put in the work. That could also make homes more affordable to Millennials who are into their careers enough to consider buying a home. The state of Connecticut is having a hard time keeping our talented young profes- sionals in the state. These aspiring homeowners will have a difficult time in our Great- er Hartford market because there just isn't a large supply of affordable, smaller homes. Add student-loan debt to the equation and most young professionals either remain at home or rent an apartment. Frank Amodio Dale Stevens Joel Grieco is a managing director at realty brokerage firm Cushman & Wakefield in Hartford. ECONOMIC FORECAST