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2020 U.S. Real Estate Market Outlook
November 19, 2019


Expectations for slower economic growth will shape U.S. capital markets conditions in 2020. While investors are increasingly cautious and focused on an investment’s potential for downturn protection, investment capital remains abundant. With global bond yields expected to remain extremely low and equity markets likely weaker and more volatile, the stable, solid returns of U.S. commercial real estate will be even more attractive.

Foreign investment should also rebound next year after significant pullback in 2019, as a substantial decrease in hedging costs for many major investor countries (spurred by falling U.S. interest rates) drives more foreign investors to compete for U.S. assets, particularly in “safe haven” core markets. Although U.S. interest rates are expected to remain low, periods of volatility could occur, causing short-term disruptions in the capital markets. This could include fluctuations and short-term increases in currency hedging costs, potentially impacting foreign investment activity in U.S. commercial real estate.


Domestically, low interest rates have fueled demand for debt financing, particularly as low cap rates prompt the use of leverage by some investors to boost returns. Lenders are largely keeping pace with this demand. Increased lending by debt funds, mortgage REITs and other alternative lenders should continue in 2020. Although underwriting was slightly more conservative as of late 2019, lending momentum should remain healthy next year.

Multifamily lending activity is projected to rise due to an expected increase in financing opportunities. Given recent increases to their lending caps, Fannie Mae and Freddie Mac likely will maintain their market share. Other lenders are expected to increase their multifamily volumes as well due to the increase in lending opportunities.

On the equity side, there was nearly $210 billion of available capital focused on North American real estate as of September 2019, according to Preqin. Much of this capital must be deployed in 2020 to meet deadlines promised to investors. Moreover, several major institutional investors, including risk-averse pension funds and insurance companies, plan to increase allocations to real estate next year.


Given this considerable liquidity and a global search for yield, investor interest in U.S. commercial real estate will remain strong in 2020. Nevertheless, investment volume is expected to decrease by between 5% and 10% from 2019 levels as greater investor caution and selectivity coupled with very high asset prices increase the time required to close deals.

A pause in transaction activity could occur ahead of the November 2020 presidential election, which would temper volume in H2 2020. Nonetheless, the approximately $478 billion to $502 billion of investment volume expected in 2020 would be one of the highest annual totals this cycle, on par with 2018 and 2019 levels.

Although appetite for risk generally is decreasing at this late stage in the cycle, some investors continue to look for higher yields given the low cost of capital. As a result, certain fast-growing secondary and tertiary markets, as well as alternative asset types (see alternatives section for more information), likely will see increased investment next year.



Note: Historical and forecasted volumes exclude entity-level deals.
Source: CBRE Research, Real Capital Analytics, October 2019.


Some property owners will begin to accept lower prices in order to close deals more quickly, but, in aggregate, we anticipate property values will be largely stable next year. However, because NOI is expected to increase faster than property values, cap rates likely will edge up slightly. The minimal increase in the 10-Year Treasury yield anticipated for 2020 will help limit cap rate increases and keep the spread about 200 to 300 bps above the risk-free rate next year.

We expect industrial and office cap rates to increase by 10 bps in 2020 and retail to increase by 20 bps. Multifamily cap rates should decrease by 10 bps, as a period of slower economic growth sustains strong investor interest in rental housing, supporting high valuations but limiting landlords’ ability to hike rents and tapering NOI growth. Increased property taxes levied by underfunded municipalities are also putting additional pressure on NOI.

As appreciation in property values slows, total returns should be lower in 2020 than in recent years. However, income returns will remain steady, making U.S. commercial real estate an attractive, reliable option for both domestic and foreign investors to fortify their portfolios at the outset of a year that is guaranteed to have at least some level of geopolitical and economic turbulence.



Source: CBRE Research, U.S. Federal Reserve Board, CBRE Econometric Advisors, October 2019.

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Richard Barkham, Ph.D.
Global Chief Economist & Head of Americas Research
+1 617 912 5215
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Spencer Levy
Chairman, Americas Research & Senior Economic Advisor
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Andrea Cross
Director, Capital Markets Research
+1 415 772 0337
+1 213 804 8211
Taylor Jacoby
Taylor Jacoby
Associate Director, Investor Services
Americas Research
+1 202 585 5547