The 2020 outlook for U.S. industrial and logistics real estate, as seen through the eyes of real estate services giant CBRE Inc. (NYSE:CBRE), could best be described in the way that the company views the country’s commercial real estate market next year: slowing but sufficient.
Available industrial supply will exceed demand in 2020, a phenomenon that has been absent from the market for the past seven to eight years but has resurfaced recently with more capacity coming online to meet the surge in e-commerce demand and the need to build fulfillment and delivery centers closer to the end customer who demands ever-faster times. As a result, the industrial market’s 38-quarter streak of positive net absorption, where the amount of leased space exceeds the amount of vacated and available space, will be hard to sustain next year, CBRE said.
Still, rents are expected to rise 5% year-on-year, CBRE forecast. This may indicate demand that has been on a multiyear tear simply downshifting to tight from ultra-tight and demand remaining strong enough to justify price hikes. CBRE did not discuss specific trends in its report.
The sector should face little impact from geopolitical risk next year, CBRE said. Industrial real estate has been mostly immune from the various trade conflicts, though there had been concerns expressed by some companies that investors had grown more cautious in the wake of the multiple uncertainties. Warehouses account for about 60% of the company’s industrial and logistics segment.
The industrial sector, along with other commercial real estate categories, will benefit from favorable macroeconomic conditions next year, the report predicted. Commercial real estate investment returns should remain stable, with decent returns and moderate risk, the firm said. This will look especially attractive given historically low global bond yields and increased equity market volatility, CBRE said. Investment volumes should range between $478 billion and $502 billion, about the same as the prior two years.
In addition, foreign investment should rebound next year after a pullback in 2019 as a marked drop in sovereign governments’ hedging costs due to lower U.S. interest rates spurs more foreign capital to compete for U.S. assets, CBRE said.