By Alex Griffin | Investment Associate | Beman Group Blanchard and Calhoun Commercial
A new decade has begun, being led by what is certain to be an interesting year: 2020. The Roaring Twenties have begun again and this year will bring about uncertainty in politics (election year), the economy (longest expansion in US history and ongoing trade wars), and geopolitical concerns (Iran, Russia, China, etc.). With real estate, I expect there to be a lot of surprises as well, and I hope to highlight a lot of the news in real estate throughout the year. That being said, here are 3 news stories to kick start your 2020!
Heitman Names Top Real Estate Markets Real estate investment manager, Heitman, has named their top three metro markets for global real estate investors in 2020 as: London, New York, and Singapore. Other cities included are: Paris, Tokyo, Hong Kong, Amsterdam, Los Angeles, Frankfurt, and Sydney. Both Amsterdam and Frankfurt join the top 10 for the first time, helped by positive momentum from the regions’ strong sustainability rankings and the anticipated impact of Brexit on continental Europe. Chinese markets Beijing and Shanghai fell in the rankings due to ongoing trade disputes between US and China and questions around China’s environmental sustainability.
Multifamily Investment Yields Expected to Further Tighten Strong fundamentals in multifamily, paired with low interest rates and investor appetite, should make 2020 another strong year for multifamily. As interest rates remain low, and may go lower, cap rates may be able to fall more and still offer attractive spreads to investors. Lower interest rates also mean lower cost of borrowing, and a lifted boost to equity returns. Intense demand will also drive yields down; JLL’s research head pointed out that $20 billion was raised in 2019 by close-end funds targeting only multifamily. Strong desire for yield has pushed investors into alternative concepts as well, such as co-living and short-terms rentals.
Sale-Leaseback Transactions Continue to be Popular with Retailers
In 2019, the following retailers were among those to execute sale-leaseback transactions: Walgreens, Albertsons, Darden Restaurants, Bass Pro Shops, and Bed, Bath, Beyond. In a sale-leaseback transaction, retailers sell their real estate to investors and then enter into a long term lease. This “asset-light” strategy allows the retailer to unlock much needed capital to reinvest in their core business operations or to drive growth through share repurchases or debt retirement. In this low-cap rate environment, retailers are able to take advantage of high prices and give themselves more flexibility in their business operations. Expect more of this in 2020 as cap rates fall or hold steady.