Why 2020 Will Be a Year of Cautious Optimism

This year, investors will precede with cautious optimism. With strong market fundamentals, fear of a recession has subsided, but as pricing continues to climb to new peak levels, there is reason to be concerned. Industrial and multifamily land prices are hitting new records, and construction costs have continued to increase, making new construction a higher risk than before.

“I am cautiously optimistic. We are seeing record land prices at $60 per square foot for infill land in Los Angeles and Orange County and $25 per square foot in the Inland Empire,” Tom Kenny, EVP at Bellwether Enterprise, tells GlobeSt.com. “Those numbers are peaks, and any time you hit those, you have to start being a little bit cautious. However, investors think rents are going to continue to rise and that you can justify a new build at high costs.”

Pricing is cause for concern because it requires more rent growth, and after several years of strong rent growth, rents are beginning to plateau. “You have to have continued rent growth to support land and construction prices,” says Kenny. “So, because we are at such a high, I can imagine that we will see less activity going into 2020. But, it is not because we are hitting any trouble. It is just people hitting the pause button a little bit because we have been so busy over the last five or six years. There are a lot of people that don’t want to have a misstep.”