CBRE sees more growth ahead for the U.S. commercial real estate industry in 2020, although the pace of expansion could slow thanks to already strong fundamentals that will be tough to improve upon combined with some broader economic headwinds as part of its 2020 Real Estate Market Outlook. Specifically, uncertainty surrounding trade negotiations, weakness in manufacturing and the approach of the presidential election season will hang over the industry in 2020.
Still, the report predicts a "very good year" for the industry.
CBRE provided NREI an exclusive first look at the outlook report. Investment sales volumes should remain near peak levels and industry fundamentals in most sectors will remain strong as well, according to the forecast.
“Next year will bring deceleration on a few fronts, but this still is an expanding economy and a flourishing property market benefiting from a robust job market, solid consumer confidence and low interest rates,” Richard Barkham, CBRE’s global chief economist and head of Americas research, said in a statement. “We’ll see resilience across asset classes such as office, retail and multifamily as demand continues to buoy those sectors. And we see transaction volumes and capitalization rates staying relatively stable.”
CBRE projects that Investment volume should reach between $478 billion and $502 billion, "on par with the prior two years and making it one of the strongest years on record."
Other highlights:
- In the office sector, new construction will outpace net absorption, resulting in a slight increase to the national vacancy rate and a slowing of rent growth to a 1.6 percent gain.
- CBRE projects the flexible-office sector will grow by 13 percent in 2020, down from an expected 23 percent in 2019. Flex office inventory should grow to 87 million sq. ft. by the end of 2020, accounting for 2.1 percent of the U.S. office market.
- The market’s streak of 38 straight quarters of positive net absorption might be hard to sustain in 2020 with vacancies historically tight.
- For retail, rents and net absorption are likely to post small gains due to a relative dearth of new retail construction. Trends likely to gain momentum in 2020 include developers converting malls to mixed-use complexes, Generation Z boosting traffic at retail centers, and health and wellness uses taking more retail space.
- Multifamily is positioned for continued favorable performance in 2020 but will experience some cooling due to new supply outpacing demand.
- Alternative investments – a category including self-storage, data centers, medical offices, life sciences facilities, senior housing and student housing – has grown to a 12.5 percent share of all commercial real estate investment in 2019 from 6 percent in 2007. CBRE sees investment volume in this category matching the $59 billion annual average of the past six years.
The following slideshow includes excerpts of the report along with the key industy stats guiding CBRE's outlook.