The future of real estate in Boston, for 2020 and beyond!
With 2019 coming to an end in a matter of weeks, we are thinking about both the coming year and the start of a new decade. I believe that next year and beyond will be characterized by what I refer to as the “three t’s:” transition, tension and transformation.
Let’s first start with transition to the next phase of the cycle. Ten years into the current expansion, the longest in U.S. history, the question I get most is “when will the next recession hit?” The short and honest answer is that no one knows.
Despite some recent headlines, the outlook for the global and national market is for slowing growth rather than contraction in 2020, and the Boston landscape remains quite positive within that macro context. Although some warning signs exist within the financial markets, within the business sector and on the policy front, consumers continue to power the economy along bolstered by job and wage growth, housing, and stock market gains. U.S. consumer spending still accounts for 70% of the domestic economy, and 17% of the global economy. Our outlook calls for a volatile but positive 2020, and a likely recession (milder than the last one) in the next 18-36 months.
Locally, the strength of technology, health and medical sciences, and the diverse service sector will keep Boston ahead of the pack. Across property segments, tech and life science innovators, new uses such as flex space and experiential retail, and demographically favorable apartments and urban logistics are increasingly driving demand and garnering investor interest. Concerns locally include affordability, and infrastructure, and Boston is competing in a new world order of cities globally.
There are also growing tensions, the second “t” (tension), that we think will persist in 2020 and beyond that will create uncertainty and risk. On both a national and global scale, a myriad of policy risks will continue to exist heading into the coming year that will have an impact on the commercial real estate industry.
The 2020 U.S. election, Federal Reserve decisions in the face of an unprecedented interest rate environment, and the beginning of a likely multi-decade and multi-faceted challenge between the U.S. and China will all impact the markets and sentiment.
The 3rd “t” is transformation. Technology is accelerating the pace of change, and the 4th industrial revolution will be defined as the fusing of physical, biological, and digital worlds. Breakthroughs in emerging fields such as artificial intelligence, biotechnology, nanotechnology, and quantum computing are redefining what is possible across all industries and all phases of work, live, and play.
TRENDING
Partners HealthCare announces name change, new five-year plan
How Boston compares with cities most at risk of housing downturn
Power Breakfast: Life Sciences
Dec. 20
This $15M downtown Boston penthouse was a star of the silver screen
This $37M mansion was once owned by the richest man on the Titanic
Take a tour through Akamai’s new Kendall Square headquarters
Partners, GE say they've developed a better artificial intelligence
While parts of real estate have not changed much in the last century let alone the last decade, our industry is far from immune this time around. Technology will shape the size and location of demand, the way we communicate, transact, and work, and the buildings we build, operate, and occupy. The risks are real for those who are resistant to change, and the opportunities are great for investors who find a way to ride these coming waves. Boston is well positioned for a transformation economy with academic institutions, tech talent, and an ecosystem of innovation.
So, what should we expect for the 2020s and what does this all mean for Boston? Taking into account the “three t’s,” I see four major themes emerging during the coming decade:
1. Slower growth – After a positive but volatile 2020, we will see a less severe next recession, and then the market will enter a phase of slower growth due, in part, to aging demographics.
2. Policy – Increasingly trade tension, geopolitical disputes, domestic politics, and monetary policy will be risk factors occupiers and investor need to consider and underwrite to thrive.
3. Technology – Technological improvements, new business models, and dynamically changing physical and digital marketplaces will “change the game” in the next decade and force real estate participants to rethink their strategies and transform their organizations to become “future fit” and survive.
4. Climate – With climate change and social responsibility set to meaningfully increase in importance, a company’s ESGR (environmental, social, and governance reporting) plan, and a property’s resiliency will be of upmost importance for the 2020s.