December 3, 2019
“A recession forecast right now is a speculative forecast,” said Alan Pontius, national director of Marcus & Millichap’s office and industrial group, during a webinar which culminated the firm’s six-part series on the 2020 outlook. “If you’re looking at the numbers, you can’t see it.”
Given the length of the current economic growth cycle, now tied for the longest on record, it’s prudent to ask when a downturn might arise. However, nearly half the attendees at Marcus & Millichap’s recent “Investment Strategies & Outlook” webinar, now available for on-demand replay, said any recession would occur not next year but in the year after that, while 22% said they didn’t expect one to occur at all.
That being said, the webinar made it clear that investors need to keep an eye on the future, even as they operate in the here and now. Along with economic cycles, the webinar presented other change agents that can alter the landscape, including transformative technology, demographic swings and significant behavioral shifts, and strategies for capitalizing on these dynamics.
Take the advent of Millennials as the largest demographic group, for example. The impact of Millennials on the sectors highlighted in the webinar—multifamily and retail along with office and industrial—has been widely discussed.
Yet, the webinar took a forward-looking view of where Millennial population growth is headed: the suburbs, rather than CBDs. In fact, over the next five years, downtowns are expected to experience a decrease in young adult population, while the suburbs will see an increase.
The hour-plus webinar, moderated by John Chang, SVP, research services at Marcus & Millichap, also offered plenty of sector-level insights into current market conditions. “If you’re looking at the office sector these days, you’re talking mainly about change of use and densities,” said Pontius. The co-working trend also comes up for discussion, said Pontius, with the recent travails of WeWork framed as a debate on whether the issue is the concept as a whole or the company.
Moving over to industrial, Pontius said, “It’s been virtually bullet-proof in terms of its performance. We now see a little bit of a pause; we now see a little bit of pullback in absorption. So that now poses the question: are we at the end of a run, are we taking a pause, what’s going on?”
In the view of Scott Holmes, Marcus & Millichap’s national director, retail, “The things that get the clicks and the reads are those negative stories. Any time someone shuts down a store, that seems to be the thing that the media likes to trumpet.”
However, Holmes continued, “Those who are in the business day to day know that the fundamentals are actually quite strong for retail right now. The vacancies are low, the rents are rising and there’s a good yield opportunity.”
For multifamily—which an audience poll indicated is an investment target considerably larger than any other—John Sebree offered both an upbeat outlook and potential cause for investor hesitation. “On the positive side, the fundamentals in multifamily are very, very strong,” said Sebree, national director, multifamily at Marcus & Millichap. “Workforce housing is doing extremely well, occupancy rates and rent growth continue to be strong.
“On the hesitation level, rent control is starting to become a factor in some states and is becoming a topic of conversation in additional states,” he added.
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