With a new decade upon us, many are concerned about the 2020 CRE outlook and how the new year will play out for hiring. Certainly, numerous factors will influence the commercial real estate market this year – from new local regulations to global trade wars to the national economic cycle. But will things be drastically worse, much better, or more of the same?
The research and reports division of CBRE – a prominent commercial real estate investment and data firm – recently released their outlook for 2020. Overall, the outlook appears positive. But there are a few bumps along the road as well as subtle winds and turns to prepare for. Let’s break down the primary sectors and determine what the 2020 CRE outlook is for the various market sectors and hiring.
The Economy
The US is currently enjoying the longest economic boom in recent memory, but it’s certain not to last forever. However, 2020 will likely not see an outright recession. Though growth will likely slow to near 2%, facing a trade war with China and waning fiscal stimulus, the slowdown will be barely noticeable. The commercial property markets should prove resilient, thanks in part to preventive interest rate cuts and other stimulating policy moves. Property market fundamentals should remain strong.
Capital Markets
The CBRE report predicts commercial real estate investment volume will remain high – on par with that of 2019. The cost of capital will remain low. This, combined with increased foreign investment, domestic investment into CRE, and lower interest rates, will mean most capital markets remain strong.
However, some sectors like multifamily may see some cooling off. And investment overall is expected to decrease at least 5%. This late in the economic cycle, it is understandable to see decreased risk tolerance in investors. Yet the search for yield combined with the significantly low cost of capital will likely bolster investment in some asset types such as alternative use real estate.
Office Space
While office-related hiring growth will slow down, the US is still likely to experience about .3% growth. This means office property completions will slow down, and downtown vacancies will increase. The primary demand for office space should continue to come from the technology sector – especially in markets such as Austin and San Francisco. Flexible office space inventory should grow by about 13% in 2020.
Industrial & Logistics
The 2020 CRE outlook includes a downturn in demand for industrial space. It is possible that supply will outpace demand by approximately 30 billion square feet. Outsourcing and industrial shifts are reducing demand for industrial real estate, yet vacancies should remain very low. Third-party logistics providers will likely fill this vacuum to some extent in the coming decade but not soon enough to impact 2020. Rent growth should remain around 5%
Retail
Consumer spending will remain strong slowing slightly to around 2%. Spending at this level will continue to support job growth and modest investment gains. However, with uncertainty in the world economy – especially in regards to the trade war with China – consumers may be more cautious, and retail demand will probably slow in many areas.
However, this year marks the beginning of a new trend for retail. Generation Z is increasingly turning to shopping malls and retail outlets in search of experience-based consumption. According to a recent study, over 80% of Gen Z prefer in-store shopping, which should drive traffic back to retail centers and malls.
Multifamily
2020 is expected to hold a slight downturn for multifamily properties. Vacancy levels should rise to about 4.5%, and demand should drop about 20%. Developers will still remain active, but the focus is on shifting to the suburbs. Rent regulations are also impacting some areas like California, New York, and elsewhere. San Francisco and Los Angeles both experienced slowing in multifamily after California enacted rent controls in 2018, and this year may see a further slowing for the same reason.
The 2020 CRE Outlook for Hiring
In light of these developments and trends, the 2020 CRE outlook for hiring is shaping up to be much like 2019. Hiring overall will remain high, but the field will require more talented and experienced professionals. As the economy begins to slow down, more unqualified applicants will cloud the talent pool. Now more than ever, an effective and strategic hiring process is vital in the CRE field.
On the job applicant side, prospective employees can expect a more stringent review process. Employers will likely be more selective as they brace for the coming slowdown. They will place more emphasis on cultural fit and experience.
The 2020 CRE outlook involves some minor shifts, but overall, it should be a great year. Smart companies and professionals who are paying attention will spot some new opportunities and continue to leverage old ones. Rate of growth will slow, but it will still be a growth year overall.
