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

U.S. RETAIL SALES GROW AMID CAUTIOUS OPTIMISM

U.S. retail sales increased 3.5% year-over-year in Q3 2019 to $1.57 trillion. Key economic indicators remain strong, including unemployment at a 50-year low of 3.5%. However, consumers likely will become more cautious in 2020 amid economic and political uncertainty, issues of affordable housing and fear of rising costs due to the U.S.-China trade conflict, all of which could slow retail sales growth.

All but four of the markets tracked by CBRE EA are expected to post positive net absorption in 2020 due to limited new construction and more retail stores opening than closing. Rent growth is expected in 44 of the 62 markets tracked by CBRE EA. Atlanta, Ft. Worth, West Palm Beach and Portland will be the top markets for rent growth in 2020. Neighborhood centers, redeveloped malls and new destinations offering food & beverage, entertainment and health & wellness will drive retail absorption in these markets.

PROLIFERATION OF MIXED-USE FROM RETAIL-ONLY

Retail-only may no longer be the highest and best use for many struggling malls and oversized retail assets that are well-positioned to transform into mixed-use town centers in the heart of communities where people want to live, work and play. Integrated new uses beyond traditional multifamily residential, office and hotel are flourishing. Co-living, coworking, recreation and entertainment, sports complexes, universities, public event space and green space are complementing shopping and dining destinations, creating dynamic urban and suburban environments and community connection.

There is no formulaic mixed-use solution to apply across portfolios or regions. Every mixed-use redevelopment is complex, unique and requires translation of broad trends into a specialized approach meeting the needs of each community and providing distinct localization. Development challenges include market demand, design, regulatory issues and zoning. The most problematic hurdles are typically reciprocal easement agreements (REAs) that govern each site. 2020 will be a landmark year for how the industry challenges, amends and restructures these often decades-old REAs to successfully integrate new uses.

FIGURE 12: TOP 10 MARKETS BY RENT GROWTH, 5-YEAR FORECAST

Source: CBRE Econometric Advisors Q3 2019.

TEENS RETURN TO THE MALL

The shifting demographic focus has been mainly on the baby-boomer “silver tsunami” and millennials in recent years. However, Gen Z is a cohort with tremendous spending power positively impacting brick-and-mortar retail, especially shopping malls.

Gen Z (born between 1997 and 2010) has officially entered the economy and will continue to drive traffic back to malls in 2020. This generation spends $143 billion per year and influences an additional $460.5 billion in spending by others, according to eMarketer. They are digital natives who consume collaboratively using all digital platforms to research, cost-compare and connect.

Gen Z favors retailers that offer a seamless shopping experience where purchases originated online are fulfilled in-store. According to a recent study by A.T. Kearney, 81% of Gen Z prefers to shop in stores and 73% likes to discover new products in stores. While the store experience offers Gen Z brand connection and immersion into the trifecta of product, service and consumer experience, it also serves as a form of “retail therapy,” providing respite from constant digital engagement.

THE HEALTH OF RETAIL

More retail stores are opening than closing. Thousands of new stores will open nationwide in 2020, including by once online-only retailers that recognize the brand value of a physical store, and by food & beverage concepts, grocers and franchisers. Pop-ups to test brand collaborations, launch new products or test new markets will proliferate in in urban markets and dominant malls.

Health & wellness is still in the early phase of growth, but already is one of the fastest-growing retail sectors fueling rapid expansion across the U.S. Consumers of every generation are spending more than ever on health care to improve quality of life, long-term wellbeing and self-care. New concepts in specialty fitness, beauty, healing collectives, meditation and sleep pods, as well as innovative models for traditional pharmacy, massage and facial concepts, are not just selling products and services; they are building communities of like-minded consumers. These brands are improving experience and loyalty through amenity-rich environments, customization, seamless online apps and subscription or membership-based models.

2020 will be a pivotal year for reinventing the retail landscape with a slowdown in new supply, the integration of sectors and uses in abundant mixed-use redevelopment, and the emergence of new brands.

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2020 U.S. Real Estate Market Outlook

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Contributors

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Richard Barkham, Ph.D.
Global Chief Economist & Head of Americas Research
+1 617 912 5215
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Spencer Levy
Chairman, Americas Research & Senior Economic Advisor
+1 617 9125236
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Meghann Martindale
Global Head of Retail Research
+1 212 984 8146