As temperatures drop, 2020 is coming closer and closer. While it's a given that next year will be interesting, it can be a little harder to predict what it will bring for the commercial real estate market. Nevertheless, here are ten trends that we are tracking and that we expect will make headlines in the coming year.
1. Interesting Times Are Coming
While 2020 may not bring a recession, many aspects of the economy are slowing down. While some of these issues are tied to the trade war and its lasting effects, others are more systematic. Between slowing manufacturing growth, weak car sales, and weakness in parts of the job market, 2020 will post lower economic growth than previous years. Given that it is also an election year, it remains to be seen if Congress and the White House can agree on any stimulus to counteract these trends.
2. It's (Still) A Tenant's Market
Just like last year, it's still a great time to be a tenant -- especially for office or big box retail space. While construction remains controlled, most markets have enough vacancy that landlords are motivated to make deals and fill spaces. With increasing levels of economic uncertainty, you could find yourself in an even stronger negotiating position if you are out and looking for new space.
3. SF Per Employee Will Start Moving Up
As companies seek to save money and increase collaboration, they have moved to more and more open offices, and office areas on a per-employee basis have fallen. With more and more research pointing to the downsides of open floor plans, expect to see more tenants looking at more traditional build outs with a little bit more space per person. While this will make life better for many office workers, the trend is likely to not have an appreciable impact on office demand this year.
4. Second Tier Markets.... Are First Tier
The secret is out. Second-tier markets are the new first tier. While New York, Los Angeles, and Chicago aren't going anywhere, more and more companies and their workers have discovered the benefits of smaller, lower-cost cities. You can find the talent that you need in markets like Portland, Salt Lake City, Austin, Nashville and Charlotte now. Given that they enjoy shorter commute times, lower housing costs and better quality of living, they aren't going anywhere. Tapping into these markets helps your company lower occupancy and labor costs. It also insures that you will be where your customers are in the future, since these emerging major markets frequently have higher growth rates than America's primary cities.
5. We (Still) Work
While the rise and rapid fall of WeWork was one of the biggest stories of 2019, don't expect the impact of this implosion to have a big impact on the commercial real estate world in 2020. All of WeWork's tenants still need a place to work. And their landlords still need tenants. While there will be some fallout as WeWork enters its next phase, those impacts will not be long-lasting. At the same time, the broader trend towards co-working and "space as a service" still make good sense for many tenants. It may have a different name and be run by a different company (or by the owner of a building), but your local WeWork space isn't going anywhere.
Check out the next 5 trends in Part 2!
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