Many investors started 2020 with a bullish outlook, thanks to new trade deals, record-low unemployment and steady economic indicators. No one could have anticipated the global outbreak of coronavirus, which has roiled markets and hampered growth as manufacturing, shipping, tourism and other activities contract. The publication “Expectations & Market Realities in Real Estate in 2020: Forging Ahead” examines the factors impacting real estate lenders and investors including capital flows, sectors in demand and market trends. It’s the tenth annual edition of the report, developed by SitusAMC Company, Deloitte, and the NATIONAL ASSOCIATION OF REALTORS®. Here are five macro trends highlighted in the report that could impact the real estate landscape in the year ahead.
Coronavirus is just the latest geopolitical uncertainty daunting markets. In 2019, many countries were rocked by street protests involving varying amounts of violence by either the protesters or law enforcement agencies sent to quell them. Hong Kong, Chile, Saudi Arabia, India, Bolivia, Spain, Iraq, Iran, Russia and Sudan saw violent clashes. Separately, armed conflicts and civil wars are ongoing throughout the Middle East, Africa and Eastern Europe, and Venezuela, Lebanon and Moldova are facing economic or government collapse. Geopolitical uncertainty may benefit U.S. assets, which are seen as safe havens.
In January, the U.S. and China signed the first phase of a trade deal and the U.S. Senate ratified the United States-Mexico-Canada Agreement (USMCA). For the first time in four years, the U.S. does not have any openly outstanding issues with any of its trade partners. But it’s unclear how long this will last. Tensions remain between the U.S. and France; the EU has condemned the Phase One trade deal; and the EU might not take kindly to a trade deal between the U.S. and the United Kingdom.
The British Parliament formally approved Brexit on January 9, nearly three years after the nationwide referendum, and the UK officially left the European Union on January 31. British Prime Minister (PM) Boris Johnson’s plan is similar to one pushed by former PM Theresa May, but it adds a controversial customs border in the Irish Sea between Northern Ireland and the rest of the UK. The UK will remain under EU rules of trade until December 31, 2020. Johnson has said he expects to strike a trade deal with the EU by the end of the year, but European Commission President Ursula von der Leyen has said that’s not enough time, and she believes the UK will leave without a new trade deal in place. Brexit has already cost the UK roughly 130 billion pounds (US$170 billion) and is expected to cost another 70 billion pounds (US$91 billion) by the end of 2020.
4. 2020 U.S. ELECTIONS
While the final candidate will not be known until mid-2020, several policy proposals from Democratic primary contenders would likely affect the real estate industry, including affordable housing investment. Sen. Bernie Sanders announced a $2.5 trillion “Housing for All” plan, with an emphasis on building more affordable housing and combating gentrification. Former Vice President Joe Biden proposes investing $640 billion in housing over 10 years by strengthening existing programs. His plan includes $10 billion for the Low-Income Housing Tax Credit over a decade; $5 billion in annual funding for a renter’s tax credit; $300 million on Local Housing Policy Grants, to help municipalities reduce exclusionary zoning; a $15,000 credit for first-time homebuyers; and expansion of the Section 8 program to every income-eligible family.
5. CLIMATE CHANGE
Climate change has direct financial implications stemming from rising sea levels, stronger and more frequent storms and heat waves. In addition, climate change exposes companies to transition risks, including changes in technologies, markets and regulation that can increase business costs, undermine the viability of existing products or services, or affect asset values. Many investment firms have set up sustainability groups to investigate the financial risks associated with climate change. Meanwhile, green tech offers investors a multitrillion-dollar opportunity in the years ahead in a variety of areas, including battery storage, urban mobility, renewables, software and artificial intelligence to help understand climate data, the food production ecosystem and building construction. Many of these areas are directly or at least indirectly related to CRE trends and performance.