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Commercial Real Estate Outlook for 2020

2020 continues to look favorable for investing in commercial real estate assets. Though we should always be considering all the variables in the marketplace. Some questions we are asking in 2020 are: Will this long, upward cycle in the market continue? How will the upcoming presidential election, trade war and rent controls in coastal markets impact investing.

On the positive side, supporting further interest and investment in commercial real estate are:

  1. Historically low-interest rates (great for borrowing and investors looking for higher yield

  2. Low unemployment and robust jobs market

  3. Stability/safety of the U.S. economy (foreign investment

  4. Increasing household formations (good for apartments)

  5. High levels of capital and liquidity looking for good yields.

  6. Lack of affordable housing stock remains a long-term issue

The Texas market, where we heavily invest, continues to look robust.

  • Texas employers created 37,500 new jobs in November, marking the 115th straight month of gains, and unemployment held steady at a historic low rate of 3.4% for 6 months running (TWC).

  • Despite some softness in manufacturing, it’s being offset by Education and Health Service sectors which led to growth.

  • Dallas and Houston’s economic stability are projected to be somewhat of an anomaly in the U.S. over the next several years, even as much of the world’s economic growth slows, (according to research firm Oxford Economics).

  • Dallas and Houston trail only San Francisco for near-term economic success in the analysis of how America’s 10 largest cities will fare through a slowdown.

Class B, value add multifamily apartments, are still solid for real estate investment allocation in 2020. They are proven performers in up markets, and hold their own in down markets.

In addition, Apartments (class B value add) offer affordable housing options and will continue to be in demand. Household formation continues as younger millennials have affordability issues with the rising prices for new homes. Flexible lifestyle choices and mobility of these job seekers, keep them as continued renters. Baby boomers and retirees are also downsizing and turning to apartments.

The supply of housing continues to be constrained, and the new apartments being built are offered at rents often $300 to $500 higher than our post-renovated (1980s to 2005) class B apartments, hence a solid value proposition insulates us somewhat from downturns.

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