Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.
The Urban Land Institute recently released its widely anticipated industry forecast…”Emerging Trends in Real Estate 2020″. The report indicates that while real estate economists are tempering their views on economic growth in the US, they continue to forecast steady real estate markets and returns through 2021.
The outlook remains generally upbeat amid an escalation of the U.S.-China trade war, volatility in global financial markets and the inverted yield curve for U.S. Treasury bonds.
In spite of these headwinds, the forecast cites adaptability to change along with discipline as key factors in the industry’s ability to withstand an economic downturn and the possibility of softer real estate demand in the years ahead.
The findings suggest that a willingness to embrace change and rethink growth strategies is beneficial for cities as well as the industry. Austin, the capital of Texas, is ranked 1st out of 80 cities for overall real estate prospects for 2020, followed by:
- Dallas/Fort Worth
- Los Angeles
- Tampa/St. Petersburg.
Here are some of my trends to watch in 2020:
Interest in co-living continues to grow as a way to address the housing shortage. Affordability has reached the breaking point even in markets that previously had plenty of low-cost housing. One attempt to address the problem is co-living arrangements among older as well as younger generations. There is even a pop-culture reference for this trend…the “Golden Girls” model.
Not only does co-living have financial benefits but it also creates community which is important because technology has made us more isolated.
The popularity of live-work-play districts have spread to many suburban communities, which are seeking to become hip destinations, or “hipsturbs” in their own right. The key to success: transit access, walkability and abundant retail, restaurant and recreation options.
Cool Springs, a suburb of Nashville, is a great example. Cool Springs currently has $2.8B of mixed-use projects in development.
Continued Migration from High Tax States to Low Tax States
Population growth is a major driver of commercial real estate demand. The opposite is also true. Many of the rust belt states and the states in the Northeast have high taxes paired with brutal winter weather. That’s a losing combination.
The folks that have the money to leave will continue to leave. Those that don’t will stay. Meaning most of the tax burden will remain with less tax base to pay for it. Taxes will continue to go up to offset the imbalance further exacerbating the issue.
The hardest hit will be Chicago, IL which will likely be the 2nd municipal bankruptcy in the US (Detroit was 1st). Chicago’s unfunded pension liabilities alone are estimated at $42B.
The smart money is out in front of this trend which is why there are so many more sellers than buyers in these affected markets.
Preparing for a slow down
Confidence is one thing, complacency is another. At least some serious attention should be given to the prospects for an extended downshifting in the economy and its implications for commercial property demand in the decade ahead.
Technology is affecting all property types, most obviously retail and industrial. Property managers are turning to technology solutions for productivity enhancements and improved operational efficiency. In addition, demand is increasing from occupants and capital sources for technological sophistication across all sectors.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com