Just Released: Viewpoint 2020
Jan 29, 2020
FOR IMMEDIATE RELEASE
2020’s Economy is One of Mixed Signals and Cautious Optimism,
According to Integra’s Newly Released Viewpoint Report
Annual Report Explores CRE Trends for Across the Nation, With Specialty Property Reports for Caribbean Hospitality, Auto Dealerships, Marijuana and Senior Housing
DENVER, CO — (January 29, 2020) — Most of the economic buzz heading into the new decade revolves around a possible recession and signs of a slowdown, but there are market segments on the rise, according to Integra Realty Resources’ (IRR) signature Viewpoint 2020 publication released today.
The annual report provides a detailed overview of the local and national commercial real estate market across five key property types: office, multifamily, retail, industrial and hospitality. Viewpoint 2020 also examines trends from the economy, housing, capital markets, interest rates and employment, exploring how these trends will affect commercial real estate markets in the year ahead. This year’s specialty property sector analysis covers Caribbean Hospitality, Healthcare and Senior Housing, and the maturing Marijuana Real Estate segment.
Addressing the subject on most market-watcher’s minds, Anthony M. Graziano, MAI, CRE, Chairman and CEO of Integra Realty Resources, is reluctant to speak in certainties when it comes to the timing of a possible recession. Citing the probability data from Comerica Bank, he notes, “there’s a 50% chance that everything in 2020 will be just fine.” He adds, “In the short-term, key market fundamentals including, historically low unemployment, gains in existing home sales, low mortgage rates, and improving incomes, are warding off a recession. I’m optimistic the sun will remain shining in 2020. Nevertheless, I’m bringing an umbrella.”
As in previous years, this highly anticipated report was produced in partnership with well-known veteran commercial real estate economist, Hugh F. Kelly, PhD, CRE, who is provisionally naming this next period in our economy as “the decade of deceleration.” A deeper look at demographics, GDP, strengths and challenges show a mixed outlook. And he concludes that interdependence—and the realization of it—will determine how well the economy withstands any pressures.
IRR Viewpoint 2020 Highlights (Click here to watch a video detailing these highlights)
2020 National Themes
- The Congressional Budget Office has pegged the entire decade of the 2020s as a period where GDP growth will average just 1.5%.
- U.S. business investment growth is expected to drop from 2019’s 2.2% increase to a sluggish 1.1% in 2020.
- Consumer confidence is still high, buoyed by decades-low unemployment and a strong stock market.
- Reacting to the mid-2019 inverted yield curve, the Federal Reserve lowered interest rates three times between July and October, strengthening the economy heading into 2020.
- The markets must acknowledge a sharply slower long-term rate of growth and price accordingly.
Office
- The shift of work from blue-collar to gig-economy jobs has changed how space is built, adapted, and used.
- In keeping with a wider deceleration narrative, the survey has revealed lower levels of inflation in both rents and expenses.
- The majority of markets are still considered to be in the Expansion phase, with only five of 52 reviewed markets in Recession or Hypersupply.
- Investment volume was strongest in the East and West, flat in the South, and down in the Central region.
Multifamily
- With mid-market and affordable housing in short supply, and 35% of U.S. households in the renter pool, rental market growth shows reasons for optimism.
- Investor activity is exploding in the South and West, especially in Atlanta, Dallas, and Phoenix.
- The overwhelming majority of markets are in the Expansion phase.
- Suburban markets look especially strong.
- The 2020 flow of funds is expected to continue at a high level.
Retail
- Specialization is the key to identifying opportunities, with neighborhood and community centers, especially those anchored by grocery and drugstore chains, deserving of a closer look.
- Employment growth seems to be the factor keeping some 53% of U.S. metros in the Expansion phase.
- The continued rise of e-commerce is still the segment’s greatest disruptor, growing its share to 16.2% by 2023.
- 55% of all retail sales for the next four years will be Internet-based.
- Of the top 20 buyers, eight were REITs. Of the top 20 sellers, REITs numbered seven.
Industrial
- Industrials are one segment still roaring ahead, spurred by the strength of its status as “the back end of the Internet.”
- Industrial property investment rose 30.5% for the year ended Q3 2019, with every region participating in the rise.
- Virtually all markets, save Syracuse, NY, and Wilmington, DE, are in Expansion.
- Flex market in Las Vegas, NV, Northern New Jersey, and Cleveland, OH could find rents rising more than 5% in 2020.
- In 2020, 88% of warehouse markets expect increasing valuation, led by Orange County, CA, and Portland, OR.
Hospitality
- After a 115-month expansion cycle, turbulence is on the horizon.
- Demand growth is a lackluster 1.2%, while supply has increased by 2%, putting downward pressure on room rates.
- Millennials are still dominating travel demographics, with an affinity for technology and higher hotel service expectations.
- Through Q3 2019, the South led all markets with $14.2 billion in sales, followed by the West at $12.1 billion, the East at $10.6 billion, and the Central at $3.7 billion.
- Modular construction is gaining traction in the U.S., with quicker time-to-market and a higher-quality product. Marriott will open its 32nd modular hotel in NYC in 2020. At 26 stories and costing $26 million, it will be the tallest of its kind.
Specialty Property Reports:
- Caribbean Hospitality: The destinations reporting largest increases in stayover arrivals were those most impacted by the 2017 hurricanes. Arrivals to the region are expected to grow, with hotel performance demonstrating increasing revenues despite flat occupancy rates.
- Healthcare and Senior Housing: The Baby Boomers haven’t fully arrived, but their looming shadow signals in increase in demand for housing, skilled nursing, and hospitals.
- Marijuana Real Estate Sector: As the industry matures, it is clear that each business requires responsible stewardship in a growing regulatory framework, and potential investors must look closely at their prospects.
IRR Viewpoint 2020 can be downloaded for free from IRR's website here. For more information about this year’s report, or to access additional IRR research, please visit www.IRR.com
Download these other Viewpoint 2020-related resources:
You can also request to have a FREE hardcopy of Viewpoint 2020 be mailed to you.
