2020 Economic Forecast

What is in store for 2020? That question was on the minds of everyone who attended the CCIM Economic Forecast this past week. The annual conference has been a “go-to” for many of us in the real estate industry for years. The presenters are great. They are experts in their field. And, almost every sector of the economy is discussed — industrial, retail, hotel, residential, office, etc. It’s always interesting to get a firsthand overview from those in the know and especially interesting to hear their predictions.

Commercial

So, what’s in store for 2020? Well, the overall opinion in the room was one of optimism. The commercial sector saw a drop off in sales volume, but transaction counts were up in 2019. The lower volume was a result of fewer mega deals, i.e., deals over $100 million. Small transactions (below $10 million) dictated the 2019 market. Cap rates remained virtually unchanged, and local investors constituted a larger percentage of the market in 2019. The predictions for the commercial sector are for a stable and steady 2020.

Retail

Retail predictions foretell a very modest slowdown. In 2019, there were some large chain store closures, but overall, the impact was limited. The good news is that local and tourism spending continues to fuel the retail market. Barring a major change, retail should continue to fair well. Trends in retail include a focus on pop-ups, health and wellness, beauty, and fitness. Gen Z is starting to spend and spend big! Oh, and the proliferation of mixed-use will continue. Integration is the name of the game. People want to work and play and shop in their own communities. Think Kaka’ako and Ala Moana.

Office

One big change was seen in the office market.

Reasons cited include the following:

• 1132 Bishop Street conversion to workforce residential housing
• HECO consolidation under one roof
• HPU’s move to over 120,000 square feet of space

The 1132 Bishop Street conversion alone, and the subsequent relocation of offices,  filled 65,000 square feet of office space. That’s a lot of absorption! Bottom line — the constraint on office space is creating a landlord-oriented market.  It looks like the days of aggressive concessions going to tenants are behind us.

Industrial

What’s the future of the industrial market? Those in the know are predicting a positive 2020. Vacancy rates are currently a low 2%. There has been a normalizing of rents across the state. Town is no longer the name of the game. Why? Because a lot of the vacancy in town is functionally obsolete. As such, tenants are paying more for better space, even if it is further out. Tenants also want cubic feet versus square feet. It’s all about volume. Height. A primary driver of the industrial market is e-commerce, so the ability to rack is important. Speaking of e-commerce, rumor has it that Amazon is looking at Honolulu. Wouldn’t that be a game change for Hawaii?

Residential

Other positive predictions included a steady residential real estate market. Interest rates are expected to stay low,  and with Millennials marrying and having children, demand for housing is expected to increase. Given the limited supply of housing, the Hawaii residential real estate market will be business as usual. Strong and steady is the forecast.

The predictions for 2020 are encouraging. Perhaps Ken Miller, CFA, with First Hawaiian Bank summed it up best:  “This is not the picture of an economy going into a recession.”

Now, that is good news!