(February 25, 2020) -- As we begin a new decade, 2020 is poised to be a pivotal year as the commercial real estate (CRE) industry searches for new market opportunities amid a more dovish Federal Reserve and a combination of shifting macro and micro variables. While opportunity zones and the cannabis space offer new avenues for investment, executives cite the elusive end of the current growth cycle, a potential recession, and the results of the pending Presidential election as their top concerns this year, according to Seyfarth's 5th annual Real Estate Market Sentiment Survey.
From a Presidential election to opportunity zones to rent control legislation, Seyfarth's 2020 Survey examines the industry's current market sentiment:
Ambiguity Abounds: Survey respondents report general uncertainty regarding the Federal Reserve's actions on interest rates in the coming year. One reason for the confusion could be the volatility consistently present in many influential market indicators. A potential pandemic, an intense domestic Presidential election, and the fear of the end of the current growth cycle all weigh heavily on the industry.
Presidential Promises: President Trump was considered to be the candidate most favorable to the industry in the firm's 2016 survey (33 percent) when he promised deregulation, job growth, and tax cuts. In this year's survey, respondents displayed their approval, rewarding the President with the lead position once again (62 percent). Industry-favorable legislation, such as the Tax Cuts and Jobs Act, and a strong economy have sustained prosperity for the CRE industry. Representing the opposition in second place in the 2020 survey (31 percent) is former New York Mayor Mike Bloomberg.
Concerns Mounting: The greatest concern for the CRE industry this year is the end of the current growth cycle, followed closely by a potential recession, and then the 2020 Presidential election results. The sustained growth economy for more than a decade has provided a stable environment for the real estate market. Predictions of an economic demise have been reverberating the last several years, but this year the forecast has garnered greater support among survey respondents. The prospect of fundamental change to the CRE-favorable policies of the current administration creates uncertainty, which can be anathema to real estate professionals.
When Opportunity Zones Knock: A key accomplishment touted by President Trump in his recent State of the Union address, opportunity zones are still uncertain ground in the eyes of most survey respondents (77 percent). Nevertheless, 31 percent of respondents plan to participate in the federal program as a either a sponsor or investor in 2020. One big reason for the increased enthusiasm is the finalization of the governing regulations in December, 2019.
Rent this Way: Location. Location. Location. As rent control legislation continues to pass city and state legislatures, CRE executives are weighing their options to invest in multifamily markets subject to this unwelcome oversight. The geographic location of survey respondents seems to explain the split sentiment, with those in rent-controlled environments voicing the most concern. When the legislation arrives in their backyard, other professionals' attitudes may change.
Marijuana Momentum?: Although cannabis legalization is sweeping the country, 79 percent of respondents this year say they will not engage in any CRE transaction or investment involving marijuana or hemp/CBD in 2020. There is no doubt that the federal view towards the Schedule 1 drug gives pause to many industry executives. Nevertheless, a notable quarter of respondents (25 percent) indicate that cannabis issues are surfacing more often in their transactions.
Weather Watch: The news of global events as a result of climate change has not influenced the feelings of most working in the real estate space. The wildfires in California and Australia, and other news of weather-related disasters around the globe are not surfacing materially in the feedback from the ultimate decision makers on real estate investment. Over two-thirds of respondents (67 percent) do not factor climate risk costs in their deals.
Seyfarth's Real Estate department, recognized as one of the largest real estate practices in the US, surveyed commercial real estate executives in January. View a full copy of the 2020 Seyfarth Real Estate Market Sentiment Survey here.