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2020 U.S. Real Estate Market Outlook
November 19, 2019


Specialty sectors including self-storage, data centers, medical office, life sciences facilities, seniors housing and student housing have been particularly enticing to commercial real estate investors over the past six years. The same holds true for the year ahead.

Broad interest in alternatives is noted in CBRE’s 2019 InvestorIntentions Survey, which found that 40% of survey respondents were actively pursuing one or more alternative sectors. Higher yields are one principal attraction of alternatives. Generally healthy market fundamentals and impressive long-term growth potential due to secular shifts in demand are also drawing capital to specialty sectors.


Investment in the major specialty sectors has risen steadily in both volume and market share over the past decade. Volume more than doubled in 2011 and again in 2014. Since 2014, alternatives investment volume has averaged $59 billion annually, accounting for 12% of all commercial real estate investment. At the peak of the last cycle (2007), alternatives investment was half this amount and only 6% of total commercial real estate investment. Preliminary data for 2019 shows that alternatives’ market share rose to nearly 13% of total commercial real estate investment.


Source: CBRE Research, Real Capital Analytics, Q3 2019. *2019 is estimated based on data year-to-date through August.


Source: CBRE Research, Real Capital Analytics, Q3 2019. Year-to-date through August.


Note: Percentages represent market share of all alternatives investment.
Source: CBRE Research, Real Capital Analytics, Q3 2019. *2019 is based on data year-to-date through August.


The increased interest and buying activity in alternatives have been driven by five primary factors that will continue in 2020:

1. Yield Premium

Even with yield compression in recent years, most alternative assets trade at higher cap rates than conventional real estate. For example, seniors housing (excluding nursing care) and student housing had average cap rates of 6.3% and 6.1%, respectively, in 2019 compared with multifamily’s 5.5%, according to Real Capital Analytics. Similarly, the average cap rates for life sciences and self-storage acquisitions were both about 6.1%.

2. Rising Market Demand

The sustained economic expansion over the past 10 years has been a major driver of market demand for alternative assets. Even more powerful, however, have been the structural changes in business, technology, demographics and society leading to significant growth in market demand for most alternatives.

The growing use of technology has created near exponential growth in demand for off-site cloud storage and data center facilities. Demand for life sciences facilities and medical office buildings has been rising due to technological advances in medicine, changes in how health care is delivered and an increasingly older population. Self-storage has benefitted from individuals and households having smaller homes or remaining in multifamily housing longer.

Demand for seniors housing has not risen dramatically this decade, but this will change over the next decade as baby boomers reach ages traditionally appealing for seniors housing. The average age of a new resident in an independent-living community is the mid-80s and the oldest baby boomer will turn 74 in 2020. However, the oldest baby boomers represent the target market for active-adult and other age-restricted rental housing.

Student housing investment opportunity has been driven, in part, by the continued need to update or replace outdated student housing facilities at four-year colleges and universities. Growth in student housing demand, however, has been modest due to flat enrollment nationally. Yet there is wide variation in enrollment, with many colleges bucking national trends and creating good investment opportunities.

3. Expanded Product Availability

The specialty sectors have provided investors with another avenue for investment, particularly important in the competitive U.S. investment landscape over the past several years.

4. Portfolio Diversification

Multi-property investors, particularly institutional investors, demand property diversification in their portfolios. Diversification often can be accomplished through the traditional property types, but greater investment in alternatives has provided another avenue, especially with many investors typically overweighted in office and retail and unable to acquire enough industrial & logistics assets to meet goals.

5. Transparency

Greater transparency in pricing, market performance and operations provides prospective investors with deeper understanding of specialty sectors and greater comfort in investing in them. Improved transparency should also mitigate risk. While coverage of the specialty sectors is not as rich as for the traditional property sectors, there is a rising number of information and performance measurements. Greater transparency will continue in 2020 and help make the specialty sectors more appealing to investors not thoroughly familiar with the product.


1. Scale & Limited Product Availability

Many investors, especially institutional buyers, need large transactions or the ability to build a sizeable portfolio to justify the learning curve and investment platform needed for alternatives investment. This often is not possible, since the specialty sectors remain quite small compared with the major real estate sectors.

2. Oversupply

Favorable economic conditions and increased demand over the past decade have resulted in a large supply of new specialty product. Most of this space has been readily absorbed, and the new supply has created investment opportunities. But a few specialty sectors now are oversupplied, which will give investors pause in 2020.

The two sectors where oversupply is more evident are self-storage and seniors housing. Robust construction of self-storage facilities in many markets led to modest rent declines in 2019. The seniors housing construction pipeline has slowed over the past two years, but not enough for occupancy to rebound. The sector had lower-than-usual occupancy and only modest rent growth in 2019.

3. Operations

Each of the alternatives has specialized operations, some of which are highly complex. In the case of seniors housing, management is intensive. Investors often partner with experienced operators for property management; nevertheless, investors need additional expertise.

The investment allure of alternatives will remain very strong in 2020, despite these industry challenges. Specialty-sector investment in 2020 should match the $59 billion annual average of the past six years and account for 12% of total U.S. real estate investment.

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Related Research

Americas Investor Intentions Survey 2019

February 21, 2019
While investors expect to remain active in real estate markets this year, they plan to be more conservative in their acquisitions. Increased caution, however, is counterbalanced by the search for yield in a late-cycle environment, which is drawing more investors into secondary markets.
February 21, 2019

2020 U.S. Real Estate Market Outlook

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Richard Barkham, Ph.D.
Global Chief Economist, Head of Global Research & Head of Americas Research
+1 617 912 5215
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Spencer Levy
Global Chief Client Officer and Senior Economic Advisor
+1 617 912 5236