IRR’s 2020 Outlook: Decidedly Mixed

Anthony M. Graziano. Image courtesy of Integra Realty Resources

“Mixed signals and cautious optimism” is how the 2020 Commercial Real Estate Trends Report from Integra Realty Resources, released today, characterizes the economic outlook for the coming year. IRR notes that while there’s much concern over signs of a slowdown—or a possible recession—numerous market segments are nonetheless still rising.

To drill down into that, the report provides substantive chapters on all five major product types, as well as a massive table comparing capitalization, discount and reversion rates in more than 60 metro areas across the U.S. The report wraps up with three specialized snapshots, on healthcare and senior housing, Caribbean hospitality, and marijuana real estate.

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In the report’s introduction, IRR CEO & Chairman Anthony M. Graziano, wrote that he’d like to say the entire dialogue around the next recession is predictive folly. But, citing research from Comerica Bank, he noted that “there’s about a 50% chance that everything in 2020 will be just fine.” 

Low unemployment and low mortgage rates are among the reasons to see an economy that’s unlikely to see a recession soon. Of course, numerous other factors, including issues around Great Britain and the European Union, U.S. tariff and immigration policies, impeachment, and the 2020 elections, sit weightily on the other side of that scale.

Not a High-Growth Decade

Short-term uncertainties notwithstanding, the report’s primary author, Hugh F. Kelly, PhD, has provisionally named the period that’s just beginning “the decade of deceleration.”

Hugh Kelly, PhD. Image courtesy of Integra Realty Resources

The report notes that the Congressional Budget Office has flagged the 2020s as a decade when GDP growth will average just 1.5 percent. Further, U.S. business investment growth is predicted to drop from a 2.2 percent increase in 2019 to a paltry 1.1 percent in 2020. Given a drastically lower long-term growth rate, the markets will inevitably reflect that drop and price accordingly.

Graziano’s advice is both basic and perennially sound: “Build responsibly, underwrite responsibly, go deeper on your market study requirements, question all assumptions, don’t over-leverage, understand exit strategies and sensitivities, and above all else, pay attention to the local market fundamentals.”