SoCal Investment Should Hold Strong Through 2020

The concern of a recession or major economic disruption hitting next year is becoming relatively low. This year, investment activity and rent growth were healthy, and with an election coming next year, government leaders are making the right moves to keep the economic activity going strong. As a result, the investment outlook, particularly in Southern California is bright.

“We have really been extremely busy on all fronts, thanks to the bull market in real estate and a strong economy,” Tom Kenny, EVP at Bellwether Enterprise, tells GlobeSt.com. “There is an election coming up in 2020, and it looks like they are pulling on all of the right levers to keep things going. So, we are cautiously optimistic that the current market activity is going to continue. In terms of trends, we are seeing really strong activity on the leasing and the sales front.”

In Southern California, industrial assets have been a major driver of investment activity this year, and the trend will continue to be a major component of the 2020 story. Industrial rents are already exceeding investment expectations, and will continue to climb next year. “We have seen a transformation over the last several years, thanks to online sales,” says Kenny. “Strong infill industrial to get products to consumers quickly has exploded, and those rents have benefited tremendously from that. We did a deal recently in the Inland Empire on a three-building development, and two of the three buildings have already leased before development is completed. The pro forma on rents is $20 to $25 per foot higher than it was 24 months ago. That is a really good indicator of where rents are. That is activity that we feel is going to continue in 2020.”

Lenders—or rather lender terms—are typically one of the precursors to a recession, but this cycle, lenders have remained conservative. “Lenders have stuck to their fundamentals in terms of loan-to-cost and making sure that there is solid equity in front of them,” says Kenny. “That is a difference from what we have seen in prior go-go years. Hopefully that means we have not gotten overbuilt, and at least on the West Coast, that seems to be the case. Plus, the economy and job growth is baking up the valuations and rent growth.”

As a result, Kenny is confident, although cautious, that the economy and commercial real estate investment will remain healthy next year. “I would expect that we might hit a little bump in the road,” he says. “In an election year, everyone is going to do everything that they can to keep the economy on track. On the money side, we are not seeing real fear of a major recession.”