Overall the U.S. market for 2020 continues to look favorable for investing in commercial real estate assets although we have some additional considerations to think about. One, will the long upward cycle the market has been in continue? An upcoming presidential election, BREXIT, existing trade war and some rent controls in the coastal markets are also something to keep an eye on.
On the positive side supporting further interest and investment in commercial real estate are:
- Historically low-interest rates (great for borrowing and investors looking for higher yield)
- Low unemployment and robust jobs market
- Stability/safety of the U.S. economy (foreign investment)
- Increasing household formations (good for apartments)
- High levels of capital and liquidity looking for good yields.
- Lack of affordable housing stock remains a long-term issue
The Texas market where we have a lot of our apartment deals 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.
The asset classes that we favor, multifamily apartments (class B value add), self-storage and mobile home parks still are solid core ideas for your real estate investment allocation. They are proven performers in up markets and hold their own in down markets.
Apartments (class B value add) and Mobile home parks offer affordable housing options and will continue to be in demand. Household formation continues, younger millennials will have affordability issues for new homes as prices have risen and lifestyle choices of being flexible, mobile to move around seeking job opportunities keep these assets attractive for investors. Boomers, retirees downsizing also favor these niches. Learn more about reasons to invest in apartments and mobile home parks.
The supply of housing continues to be constrained as well and the new apartments being built are offered at rents often $300 to $500 higher than our post-renovated (the 1980s to 2005) renovated class B apartments, hence a solid value proposition insulates us somewhat from downturns.
Self-storage has had a good track record of holding up in downturns. There is softness in Tier 1 cities with oversupply in some markets and that is something to keep an eye on. It looks like that will be around for a few more years as new construction continues to hit the market. Tier 2 and 3 cities still offer good opportunities. Learn more about reasons to invest in self-storage.
