2020 Will Be Pivotal For Commercial Real Estate – Top CRE Trends for 2020
2020 could prove a pivotal year for the commercial real estate industry in the United States, with economic, geopolitical and local regulatory issues all as major influencers. A solid property market, low rates, federal rate cuts and continued growth suggest another good year is upon us! Overall, our industry can expect to see more growth but a slowed pace of expansion compared to the previous year. In this blog, we explore notable trends in the year to come.
Office Space Demand Remains Strong
The tech industry contributed to approximately 21% of leasing activity in the early half of 2019 and the demand for office space is anticipated to continue in 2020, with tech tenants dominating leasing activity. Flexible office space is expected to grow as well, but at a slowed pace. Flex space is still in demand, as companies are increasingly facing uncertainty with regards to headcount, remote employment and a decentralized workforce. Flexibility and speed will contribute to the increased demand for flex workspace in 2020 and beyond.
Multifamily Continues to Thrive
As supply finally outpaces demand, multifamily will experience slowed growth in 2020 with lesser demand projected for apartment living. Vacancy rates are expected to go up, but still remain below the 5.1% long standing average. Demand is on the rise for affordable housing and more sustainable housing, especially for Millennials who are ready to own but facing housing affordability issues. Multi-family can be a significantly more affordable option for home ownership, especially in densely populated areas. Development is expected to commence in both suburban and urban areas, with suburban anticipated to remain the best bet for investment returns. Due to real estate affordability, Millennials will continue to take on homeownership at a modest pace.
Alternative Spaces
Data centers, medical office space, student and senior housing and self-storage spaces will be attractive to investors in 2020. 2019 data shows the alternative market increased to 13% of total commercial real estate investment. This increase is driven by a rise in market demand, an expansion of product availability, yield premiums, portfolio diversification and transparency.
Gen-Z Will Keep Retail Alive
With unemployment at a 50-year low, retail is expected to remain steady in the United States, with growth slowing as consumers are conscious of the upcoming election, rising costs resulting from the U.S.-China trade conflict, and affordable housing issues. 2020 will be a notable year for the CRE industry in terms of amending and restructuring older REAs for new usage, with mixed-usage spaces outpacing retail-only to serve as co-working, shopping and dining experiences as well as co-living and recreational spaces.
We can expect to see an uptick in brick-and-mortar retail from the Gen-Z crowd, who enjoy researching and making comparisons online, but fulfilling their orders in-store for a seamless shopping experience. 81% of Gen-Z prefer to make their purchases in-store, seeking a connection to the brands they’re loyal to and a break from constant digital engagement. A 2020 reinvention of retail landscape is on the horizon!
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