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The 2020 Outlook for Commercial Real Estate

Diving into a new year is always exciting. The commercial real estate outlook for 2020 shows plenty of opportunities to grow and expand. To prepare for this year, we took the opportunity to hear from experts Dr. Mark G. Dotzour and Bruce McClenny on their research and what we can expect for the upcoming year. These economists discussed changes, trends, opportunities, and concerns investors should have about the current state of the market for the country as a whole and specifically for Houston, Texas. As the fourth largest city in the country, Houston has seen steady growth over the past few years and that trend looks to continue, but at a moderate pace. Here is a snapshot of what you can expect in 2020.

What is the Outlook for the US as a whole?

CBRE Group Inc. is one of the world’s largest commercial real estate services and investment firms. They say they expect to see continued growth this year throughout the US despite uncertainties with the economy and politics. Industrial properties have seen 38 straight quarters of positive net absorption. The average rent is up 5% this year and vacancies are historically tight. Customers are more cautious in their spending, but we still see small gains in retail spaces like malls and mixed-use complexes. There is a big downsizing movement that is trending as well as families moving toward multi-family homes. Currently, the supply is outweighing demand, yet new controlled rent legislations are raising a few industry concerns.

One subdomain of commercial real estate that is seeing large growth is alternative and specialized buildings. Self-storage, data centers, medical offices, hospitals, senior housing, and student housing have grown to make up 12.5% of all CRE in 2019 from 6% in 2007. Mobile service companies competing for the attention of today’s consumer and 5G integrations boost the need for data centers to maintain their service quality.

The growth may be slower, but the rise is steady.

According to Texas A&M economist Dr. Mark G. Dotzour, 2020 is going to be slower than last year. However, investors will continue with our longest U.S. economic expansion. As of January 2020, the US has been expanding economically for 128 months straight since its’ start in June 2009. The previous record was 120 months from March 1991- March 2011.

A few of the reasons for the slow down can be accredited to the peak in the auto industry as well as the trucking and shipping industry, and the pressure on the energy sector due to low oil and gas prices. However, there is also concern with the uncertainty of future federal decisions. The looming trade war with China, disinterest from Congress to do just about anything, the federal budget deficit, businesses taking advantage of tax benefits, and uncertainty in the presidential election have led investors to be more cautious with their investments.

Despite these factors, America has always represented the entrepreneurial spirit and there are still plenty of investors that are ready and willing to take up the challenge and understand that every industry will have its’ peaks and valleys. The commercial real estate industry continues to be on the rise but still means that investors should make smart decisions and take only calculated risks.

Let’s talk Houston.

Houston has seen a lot of growth over the past few years and it is projected to continue in that same way for 2020. Consumer confidence is on the rise and small businesses are finding that the market is presenting a “good time to expand.” Large corporations are also increasing their hiring plans. Not only is the commercial real estate industry growing, but businesses are hiring more people that will subsequently bring in more growth to local communities.

Stats on the rise in Houston.

Houston has had a steady rise in jobs since the recession in 2008. The average employment rate has grown by 4%. Texas employment has risen from 1940 to 13.6 million in November of 2019. Since 1985, household net worth has consistently been rising. The household equity in real estate is currently $18 trillion making a comeback from 2008 to surpass the previous peak of $14 trillion in 2006. This means more people increasingly own more equity in their homes due to the steady rise in home prices.

All this is to say that Houston is not only bringing in more people by creating more jobs, but those people are staying here and rooting themselves in the community.

The experts agree that commercial real estate investment is still on the rise and there is continued room for growth. There are abundant opportunities for investors to diversify their portfolios. Even though there are many political and economic uncertainties at this time, there are still committed individuals, small businesses, and large corporations ready to make their next investment into the local Houston commercial real estate market. As Dr. Dotzour says, “good fishing ahead but keep an eye on the clouds.”

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