2020 Commercial Real Estate Sector

Trends Forecast

01 . 12 . 2020

Commercial real estate investment in the U.S. had a record-setting year in 2019, but will happen in 2020? Although we don’t claim to have a crystal ball, leading indicators are giving CRE investors the green light.

Here’s a list of the top 2020 commercial real estate trends and what to look forward to in the new year.


The Urban Land Institute (ULI) recently surveyed over 2,200 property owners and developers, CRE brokers, residential developers, REITs and lenders.

According to ULI’s newest Emerging Trends in Real Estate report these will be the top markets for multifamily investment in 2020:1

  • Florida:Orlando, Tampa/St. Petersburg, West Palm Beach, Jacksonville
  • West & Southwest: San Jose, Inland Empire, Tucson, Austin
  • Mid-Atlantic &Northeast:Raleigh/Durham, Jersey City

Major metros vs. secondary multifamily markets

The ULI report also looked at the demand for multifamily property in both major metro markets and smaller metropolitan areas with populations of 2 million or fewer residents. In both cases, the firm analyzed favorable supply and demand fundamentals with the level of new construction activity and product in the pipeline.

Major markets for multifamily investment investors in 2020 are Austin, Atlanta, Phoenix, and Boston. Smaller metro areas that are primed for a surge in apartment development next year include Albuquerque, Tucson, and Memphis.


While profit growth in the hotel sector will be a challenge in 2020 and 2021, CBRE Hotels notes that profit margins and cash flows are already at record highs in the lodging sector, providing cushion to the bottom line.2

New hotel openings are creating downward pressure on room rates, but the 2020 hospitality forecast is still positive. CBRE Hotels predicts that RevPAR (revenue per available room) will grow 1.2% next year, and by 0.8% in 2021.

Best buys for hospitality investors in 2020

Nineteen of the top 20 hotel markets in the U.S. have a buy or hold recommendation from investors surveyed by the Urban Land Institute. Top markets for hospitality investors in 2020 are:

  • Florida: Cape Coral/Fort Myers/Naples
  • West & Southwest: Dallas/Fort Worth, Oakland/East Bay, Orange County, Austin
  • Mid-Atlantic & Northeast: Charleston, New York-Brooklyn, Nashville, Boston, Washington DC District

New Orleans was the only outlier in the survey, but that’s expected to change going forward due to the area’s ongoing recover from Hurricane Katrina and Gulf of Mexico storms.


Here’s what 2,250 commercial real estate practitioners surveyed by ULI rank as the best office markets in 2020 for investment:

  • Florida: Orlando, Tampa/St. Petersburg
  • West & Southwest: Los Angeles, Oakland/East Bay, San Jose, Salt Lake City, Austin
  • Mid-Atlantic & Northeast: Raleigh/Durham, Nashville, Boston

Aging Americans creating demand for medical office investment

Eight years from now there will be over 70 million people in the U.S. aged 65 or older, compared to 55 million today. 15 million more older Americans by 2028 is the main reason why investor demand for medical office property is growing so rapidly.

There’s also not a lot of product being developed. Last year the amount of medical office property brought to market declined by 24%. The limited amount of new medical office space combined with robust demand will keep vacancy levels low and rents rising in 2020.


Despite the National Retail Federation’s claim that the “Orwellian future” for the retail industry has finally arrived, there’s still a strong amount of market-specific demand for retail property.3

The top 10 areas for retail investors in 2020 (according to the ULI) are:

  • Florida: Orlando, Tampa/St. Petersburg
  • West & Southwest: Boise, Dallas/Fort Worth, Austin
  • Central & Mid-Atlantic: Nashville, Chattanooga, Raleigh/Durham, Charlotte, Milwaukee

What’s driving the demand for retail investment in2020?

As we ring in the New Year, over 9,300 stores will have disappeared over the last 12 months, according to Business Insider.4That’s about double the number of store closures compared to 2018. With a statistic like that, one may wonder why there’s any demand for retail property at all.

There’s no doubt that a lot mall-based Class B and C property will go away, simply because there’s too much retail space in the U.S. compared to other countries.5 However, the fact is that when retail assets disappear, they don’t entirely disappear. Instead, they are redeveloped into new and better mixed uses.

Some of the top retail development trends to look for in 2020 include:

  • Neighborhood centers, urban/high-street retail, and lifestyle/entertainment centers remaining in strong demand.
  • Generation Z (born in the mid to late 1990s) is driving traffic back to mallsthat offer a social experience.
  • Older retail property located in areas where people can live, work, and play are being transformed into mega mixed-use developments.6


According to Commercial Property Executive, net absorption of industrial space will decline next year.7 But unlike many negative numbers, that decrease isactually a good thing for investors. Because vacancy rates are reaching historic lows fewer tenants are moving, opting instead to stay put and pay rent higher rents demanded by landlords.

ULI’s forecast of the top industrial, distribution, and logistics markets for 2020 are:

  • Florida: Tampa/St. Petersburg
  • West & Southwest: Oakland/East Bay, Inland Empire, Orange County, Austin, Dallas/Fort Worth
  • Central & Mid-Atlantic: Charlotte, Louisville, Nashville
  • Northeast: Washington D.C./Northern Virginia

Warehouse and fulfillment remain red hot in 2020

Accelerating economic growth, expansion of distribution networks, and growing imports helped drive the absorption of 277 million square feet of industrial space last year.

Next year, net absorption of warehouse and fulfillment space will remain low as developers struggle to meet the surge in demand created by e-commerce. In fact, CBRE predicts that the average rent for Class A warehouse space will grow by another 5% in 2020, marking the 5th year in a row that industrial rents have risen by more than 5%.

Industrial real estate investors seeking high income returns combined with strong liquidity in 2020 are focusing on secondary markets such as Cincinnati, Denver, Portland, St. Louis, and Tampa.

Alternative Investments

The demand for commercial real estate investment from institutional and private investors in 2020 will remain robust. However, investors are becoming more selective by seeking out alternative CRE investments that offer both portfolio diversification and higher yields.

In fact, the market share of alternative investments and specialty property has more than doubled over the last 12 years. This asset class now accounts for around 12% – roughly $59 billion annually – of all commercial real estate investment, according to CBRE.

Benefits of alternative investments

  • Growing demand for specialty assets due to non-cyclical, long-term trends in proptech and fintech, demographics, tenant experience, and environmental, social, and governance (ESG) criteria.
  • Diversify portfolios with current overweight holdings in the traditional multifamily, office, retail, and industrial asset classes.
  • Higher yields and cap rates of alternative CRE investment help to offset the cap rate compression found in mainstream commercial real estate assets.
  • Product availability and options increasing as developers race to meet the demand from today’s tech tenants and the national and international capital markets.
  • Improving operational and pricing transparency of alternative investments will continue in 2020, creating a greater appeal amongst a wider-range of CRE investors.

Alternative investment classes by market share

A recent article in the Kansas City Business Journalalso noted that strong underlying macroeconomic trends such as demographics and emerging business models are helping to drive the demand for alternative investments in 2020.8

The following list of the most popular specialty investments by asset type and share of the overall alternative investment market illustrate how true that observation is:

  • Senior housing, assisted living, nursing care 31.3%
  • Medical office1%
  • Student housing3%
  • Life sciences8%
  • Self-storage0%
  • Manufactured housing communities 6.3%
  • 55+/Active adult communities 3.2%
  • Data centers1%

Capital Markets

Investment capital flows into markets where demand is greatest, and the risk-adjusted returns are highest. According to the Urban Land Institute, over the next 10 years the top markets in the U.S. with the best overall CRE prospects are:

  • Florida: Orlando
  • West & Southwest: Los Angeles, Seattle, Dallas/Fort Worth, Austin
  • Central & Mid-Atlantic: Raleigh/Durham, Nashville, Charlotte, Atlanta
  • Northeast: Boston

Markets with the strongest capital flows

ULI also looked at the recent trend of capital flows into major commercial real estate markets across the country. Over the last three years, these nine markets accounted for more than 17% of the entire CRE transaction volume in the U.S.:

  1. Manhattan
  2. Chicago
  3. Inland Empire
  4. Northern New Jersey
  5. Houston
  6. Phoenix
  7. San Diego
  8. Oakland/East Bay
  9. Miami

Because capital investment is leading indicator of future growth, these commercial real estate markets are forecast to provide robust returns in 2020 and beyond.

How CRE capital allocations will change in 2020

After more than 10 years of robust increases, many market experts expect GDP growth to take a breather next year.9 Whether or not that occurs remains to be seen, but as CBRE points out, liquidity will remain high in the U.S. thanks to the country’s reputation as a safe haven for CRE investment worldwide.

  • Debt markets remain strong as traditional lenders and alternative capital sources such as REITs and debt funds compete for business.
  • Equity of about $210 billion needs to be placed in 2020 in order for commercial real estate investment funds to meet promises made to investors.
  • Investors will see a yield premium of between 2% and 3% as the spread between commercial real estate cap rates and the risk-free rate of return from the 10-year Treasury bond widens.
  • Retail and industrial cap rates will trend slightly upward, while multifamily and office capitalization rates hold steady in 2020.

Where to invest in commercial real estate in 2020

With over $200 billion waiting to be invested in commercial real estate market next year, there’s plenty of reason to be optimistic.

While GDP may slow slightly due to record low unemployment, the trade warriors have finally called a truce, giving CRE investors the green light for investment in 2020. Although demand remains robust, investors will also look for opportunities with higher risk-adjusted yields and strategic portfolio diversification.



  1. https://ulidigitalmarketing.blob.core.windows.net/emergingtrendspdfs/ET2020FallMeeting.pdf
  2. https://pip.cbrehotels.com/about-us/news/2019/08/22/q2-2019-hotel-horizons-forecasts-update
  3. https://stores.org/2019/12/02/coming-soon/
  4. https://www.businessinsider.com/stores-closing-in-2019-list-2019-3
  5. https://www.statista.com/chart/9454/retail-space-per-1000-people/
  6. https://www.constructiondive.com/news/6-mega-mixed-use-projects-across-the-country/541441/
  7. https://www.cpexecutive.com/post/cbre-2020-cre-outlook-is-optimistic/
  8. https://www.bizjournals.com/kansascity/news/2019/11/21/key-take-aways-a-commercial-real-estate-outlook.html
  9. https://www.globest.com/2018/09/27/what-cre-will-look-like-in-2020/