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Slow but Sustainable Economic Growth will Buoy Commercial Real Estate Industry in 2020

Posted On December 17, 2019

As 2019 comes to a close, BBG reflects over the past year and anticipates what’s in store in 2020.

BBG achieved yet another year of significant growth in 2019, increasing our presence in key markets; adding and expanding service lines; and recruiting high-level executives to our winning roster.

BBG broadened our footprint in the Northeast with the opening of our Philadelphia office and the acquisition of New Jersey-based Izenberg Appraisal Associates. Acquiring Izenberg Appraisal Associates expanded our litigation support practice in the Northeast, as the move followed our December 2018 acquisition of New York-based Jerome Haims Realty, a firm regionally renowned for litigation support services.

BBG also added due diligence services for Qualified Opportunity Zone projects and new expertise in zoning.

In addition, BBG opened an office in Seattle, adding to our existing Northwestern offices in Vancouver, Wash., and Portland, Ore.

BBG’s growth was buoyed by favorable market conditions, including a strong U.S. economy, low interest rates, and continued investor demand for commercial real estate properties.

2020 Commercial Real Estate Trends

The good news looking forward—not only for BBG but for the industry as a whole—is that positive market conditions will carry over, and earlier concerns of a recession hitting in 2020 have subsided as confidence builds in slow but sustainable economic growth. Still, for investors the whiff of uncertainty hangs in the air, but this only serves to benefit commercial real estate, which is largely considered a safe investment, offering consistent returns for the most part.

Breaking commercial real estate down by sector, the outlook is different for each, with interesting developments ahead for office, multifamily, and industrial. WeWork’s financial tailspin has moderated what had been expected to be rapid growth in the shared workspace market, Meanwhile, tech tenants will drive leasing activities in markets like San Jose and Austin.

Multifamily originations are set to hit an all-time high in 2020, but on the refinance side of things, there aren’t that many opportunities out there, which could cause a slowdown in the sector. In addition to expanding multifamily lending caps for Fannie Mae and Freddie Mac, the Federal Housing Finance Agency now requires the two firms to direct over one-third of their multifamily activities to affordable housing. Moreover, rent control—in force in big coastal cities and spreading fast—will prevent rents from spiraling upward as they have for 10 years. While a positive and necessary development overall, rent control and other regulatory actions could reduce multifamily investment in 2020 and beyond. However, as a whole, the multifamily sector will generally remain sturdier than many had anticipated, with the greatest opportunities in secondary and tertiary markets.

E-commerce and the push for faster delivery is fueling demand for light-industrial warehouses located in or close to major population centers. Buying portfolios of small urban warehouse stock has been an investor strategy that will come up against increased competition in 2020.

The coming year won’t be without challenges. The Fed’s interest rate cuts in 2019 quelled uncertainty about the global economy, but those cuts are liable to make banks less willing to write loans. Still, we expect another strong first half overall in 2020, until the upcoming presidential election begins to breed uncertainties and likely cause a temporary lull in commercial real estate activity.

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