Commercial Real Estate Executives Look Ahead to 2020
Commercial real estate executives hold widely divergent views about how the CRE sector will perform over the next 18 months, reported Deloitte, New York.
The firm surveyed 750 CRE owners/operators, developers, brokers and investors in 10 countries in its 2020 commercial real estate outlook. It found 15 percent of respondents called themselves very optimistic, 61 percent somewhat optimistic, 14 percent neutral and 10 percent somewhat pessimistic.
“This is not surprising; when it comes to economic changes, the [CRE] industry typically lags the broader economy by six months,” Deloitte said.
Regionally, respondents from Asian countries were the most optimistic, followed by those from North America and Europe, but a relatively higher proportion of respondents from Hong Kong, Singapore, Japan and the United States called themselves very optimistic about the industry’s performance.
The U.S. respondents said they expect property fundamentals to be moderately positive into 2021. Deloitte said two-thirds of respondents with office-heavy portfolios expect to see growth in rental rates and one-third anticipate a decline in vacancy levels. “Respondents with mostly non-traditional properties anticipate the highest rental appreciation,” the report said. “Meanwhile, those with a dominant multifamily properties portfolio expect the highest increase in vacancies.”
Nearly 75 percent of respondents said they expect to see increases in transaction activity over the next 18 months. More than half–56 percent–of respondents said they anticipate increasing cost of capital, but 67 percent said they expect more capital availability throughout 2020 into 2021.
Office property respondents were the most optimistic about both the transaction and capital markets, Deloitte said. More than eight in ten said they believe transaction activity will grow and 74 percent predicted capital availability will grow. In contrast, the report found hotel property owners the least optimistic, with 27 percent and 35 percent expecting a decline in transaction activity and capital availability, respectively, and 52 percent expecting an increase in cost of capital.
Overall, CRE executives surveyed said they consider interest rate uncertainty, geographic market and tenant concentration risks their top challenges moving forward. “Despite the macroeconomic concerns, the commercial real estate industry, particularly in the United States, seems on solid footing to attract capital,” the report said. “If there is a downturn, the short- to medium-term challenge is expected to be budgetary pressures weighing against the requirement to make technology investments.”