How Will 2020 Compare to 2019?

It is that time of the year when investors ponder what 2020 will be like. Next year, many investors are anticipating a recession, but those that aren’t are expecting a slowdown in investment activity all of the same. However, there are a lot of factors to consider. Like this year, the cycle will be mature, but next year, factors like the presidential election could sway the market activity.

“I’m expecting activity in 2020 to slow down a little, as people wait to see how the dust will settle after the election,” Seth Weissman, a partner at JMBM, tells GlobeSt.com. “I expect interest rates to stay flat (and low by historic standards), but that may not lead to greater activity.  I expect greater regulation aimed at protecting renters and requiring more affordable housing.  I expect experiential retail to continue to replace traditional retail at malls and shopping centers.  In Southern California I expect media content providers to continue to grow, which may trigger demand for office and studio space.  I expect traditional office users to downsize their footprint, without any corresponding reduction in headcount.”

Next year, Weissman expects interest rates and the election to be the forces guiding investment decisions and market trends. “Interest rates and a major election are natural issues that will likely impact the real estate economy,” he says. “At a more micro level, I think we will continue to see interest in opportunity zone investments, as well as the continuing explosion of e-commerce, warehousing, distribution, and logistics, at the expense of traditional retail.  We will also continue to see a reduction in office space for most professional firms, including law firms, as attorney-to-staff ratios continue to decline, and more people work remotely.”

This year, investment activity continued to climb over previous years. “In my practice, 2019 continued to see greater sale activity, as investors claimed gains from post-recession run-up.  While many still seek 1031 exchange opportunities, others are looking to mitigate tax impacts through qualified opportunity zone investments,” says Weissman. “At the same time, those with properties in opportunity zones have a new cadre of potential buyers, driving up values.  Low interest rates and a need for affordable housing still continue to drive multi-family residential development activity.”

While Weissman anticipates a slow down in 2020, he has been predicting a recession for years. “I’ve been expecting a recession since 2017.  Lawyers are bad prognosticators,” he says. “Other than just the expected cyclical changes, I have seen a drop in velocity at the upper end of the residential market, which usually foretells a belt-tightening, and potentially a recession. There is also the fact that we will be in an election year, and depending on who the market perceives as the parties likely to control Washington, that can impact both business and consumer confidence.”