Breaking Down CBRE’s 2020 Market Outlook

Broader Economy

CBRE expects economic growth to slow in 2020. The firm is forecasting GDP growth of between 1.5 percent and 2.0 percent, a little below the long-term trend growth rate. Factors slowing growth could include "lower capital expenditures by corporations amid heightened uncertainty in 2019, slowing global growth compounded by on-going trade tensions and waning effects of fiscal stimulus."

Fed Policy

Expect two more rate cuts in 2020, which will lower the federal funds rate to the 1.0 percent to 1.25 percent range. The fed could adopt other measures as well, including expanding its balance sheet by purchasing securities. This stimulus could help ward off a recession.

Consumer Spending

CBRE sees consumer spending slowing from 2.4 percent in 2019 to 2.0 percent in 2020. Still, spending at this level "should propel economic activity and support enough job growth to absorb new entrants into the labor market, as well as some workers who voluntarily left the labor force and are now re-entering the market."

Business & Consumer Confidence Trends

Capital Markets and Investment

With high levels of liquidty, abundant capital chasinga assets, low interest rates and a global search for yield, investment in commercial real estate should remain robust in 2020. In all, volumes may drop between five percent and 10 percent from 2019 levels, but that would still leave overall deal volume near $500 billion for the year.

Cap Rates Could Edge Up

The 10-Year Treasury yield should not move much in 2020, which would help "limit cap rate increases and keep the spread about 200 to 300 bps above the risk-free rate next year."

Office Fundamentals to Remain Steady

Office using employment is projected to grow by 0.3 percent in 2020, down from the 1.5 percent rate between 2018 and 2019. Meanwhile, completions of new office space will decline to an annual total of 51.1 million sq. ft., down from 56.4 million sq. ft. in 2019. This will still outpace absorption, however, leading to a modest increase in both urban and suburban vacancy rates. Rent growth will slow as well, to 1.6 percent.

Office Tenant Trends

Technology tenants accounted for more than one-fifth of leasing activity in the first half of 2019. They should continue to dominate demand for space in 2020.

What's Next for Flex Office

With WeWork's recent implosion, CBRE moderated its forecast for flex office space growth in 2020 to 13 percent down from an original projection of 23 percent. The firm expects flex office inventory to reach 87 million sq. ft. by the end of 2020.

Industrial & Logistics

According to CBRE, rising rents will be driven by newer product and infill industrial space in supply-constrained markets.

Secondary Industrial Markets

CBRE has identified eight smaller, secondary markets that could offer strong returns for the industrial sector in 2020.

Top Retail Markets

Retail has had a rough ride in recent years, but in 2020 CBRE expects all but four of the markets it tracks to post positive net absorption. Looking forward, it also identified the top 10 markets for retail rent growth in the next five years.

Multifamily Development

Despite some slowing economic growth, CBRE projects demand for multifamily units will remain sufficient to absorb most of the new supply coming online. Deliveries will remain near cyclical highs in the next few years with new units coming online in both urban and surburban markets.

Growing Slice of the Pie

Investment in non-traditional commercial real estate property types such as self storage, data centers, medical office, life sciences, student housing and seniors housing now accounts for a bigger share of overall investment than it used. In 2019, activity on these property types accounted for more than 12 percent of all deal activity vs. less than six percent in 2007.

Historical Investment in Alternative CRE Property Sectors

Since 2014, alternatives investment volume has averaged $59 billion annually.

Alternative Property Type Market Share

Investment in seniors housing and medical office properties combined typically accounts for roughly half of all activity in alternative CRE property types.

Data Center Inventory

Top Data Center Markets

Northern Virginia continues to dominate the data center industry and nearly three-fifths of projects under construction nationally fall in that market.