IRR Viewpoint 2020

This annual report explores national commercial real estate trends, as well as provides a detailed overview of five key property types: office, multifamily, retail, industrial and hospitality. Specifically, The IRR Viewpoint 2020 examines how trends related to the economy, housing, capital markets, interest rates and employment will affect CRE markets in the year ahead. This year’s specialty property sector analysis also takes a closer look at Caribbean hospitality, senior housing and the maturing marijuana real estate sector.

Economy & Capital Markets

  • 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.

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 hyper-supply.

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.

Retail

  • 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.

Industrial

  • Industrial property investment rose 35% for the year ended Q3 2019, with every region participating in the rise.
  • Virtually all markets, except Syracuse, NY, and Wilmington, DE, are in Expansion.
  • Flex market in Las Vegas, Northern New Jersey and Cleveland could find rents rising more than 5% in 2020.

Hospitality

  • After a 115-month expansion cycle, turbulence is on the horizon. Demand growth is a lackluster, 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.
  • 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.

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