2020 Annual Outlook

Cautious Optimism Amid Change 

Demand for tech-friendly spaces and multi-family dwellings
should help keep commercial real estate on course in 2020. 

Heading into its twelfth year, the U.S. economic expansion has maintained solid momentum. A strong macro environment and healthy property fundamentals have supported U.S. privately-held commercial real estate investment performance. The ongoing rise in occupancies, rents and asset values has continued to offer attractive risk-adjusted returns.

Institutional investor allocations to the asset class have continued to increase. Average target allocations to the real estate asset class increased 10 basis points (bps) to 10.5% in 2019, up approximately 160 bps since 2013.1 Investment sales momentum has been very strong year to date, after a near peak level in 2018, and we expect a strong year ahead in 2020 given the resilience of the U.S. expansion. U.S. transaction volume reached $579 billion, the highest level so far in this expansion (just below the 2007 peak).2


Figure 1: Real Estate as a % of Institutional Investor Current & Target Allocations
Source: Preqin. November 2019. Note: Based on over 8,000 global institutional investors in database. Past performance is no guarantee of future results. Indexes are unmanaged and not available for direct investment. Index returns do not include fees or sales changes. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.  

Most key demand indicators have remained positive; however, growth has varied significantly by region, industry, and property sector. Going into 2020, influential  investment themes include the omni-channel consumer, affordable housing, generational demographics, tech clusters, and functional obsolescence.

As such, Clarion Partners sees the most compelling ongoing opportunities in industrial and multi-family, as well as a few alternative or specialty niche sectors – such as medical office, life sciences/labs, self-storage, senior housing, student housing, and entertainment/sports.

Going forward, key issues to watch are:

  • E-commerce climbing to almost 50% of all GAFO retail sales;3
  • The continued and rapid rise in housing prices;
  • Faster job growth in tech-influenced U.S. cities (e.g. Seattle, Austin, the San Francisco Bay area, and Boston);
  • The shift by both aging Millennials and Baby Boomers to both low-tax and less costly areas (e.g. the suburbs and Texas, Florida, Arizona, and North/South Carolina);
  • Higher construction costs largely due to labor shortages, which have impacted the pace of new development.

Clarion Partners’ outlook for 2020 is cautiously optimistic. U.S. consumer spending remains strong, buoyed by a tight labor market and record-high stock market. The Federal Reserve is on an easing path, having lowered interest rates three times in 2019 and injected $250 billion of liquidity into the repo market. Low interest rates have led to historically high asset values and ongoing appreciation (excluding retail) at a time when top markets abound with capital. We believe that U.S. commercial real estate will continue to be a source of steady current income over the next year.


1 Cornell Baker Program in Real Estate and Hodes Weill & Associates. 2019 Institutional Real Estate Allocations Monitor. October 2019.
2  Real Capital Analytics. Q3 2019.
3 U.S. Census Bureau. Q3 2019. Note: GAFO = General merchandise stores, Clothing and clothing accessories stores, Furniture and home furnishings stores, Electronics and appliance stores, Sporting goods, hobby, book, and music stores, and Office supplies, stationery, and gift stores.

Additional Outlooks
Brandywine Global
Growth in the Slow Lane

ClearBridge Investments
Consumers Hold the Key

EnTrust Global
Looking Beyond the U.S.

Martin Currie
Shifting the Global Balance

QS Investors
Uncertainty on the Horizon

RARE Infrastructure
How Infrastructure Is Evolving

Royce Investment Partners
Positive Signs for Small-Caps

Western Asset
Resilient Growth, Despite Risks

Risk-adjusted return is a measure of performance relative to its level of risk exposure over a given period of time.

One basis point (bps) equals one one-hundredth (0.01) of one percentage point). 

Preqin is a source of data, insights and tools for alternative asset professionals. 

GAFO, or General Merchandise, Apparel and Accessories, Furniture and Other Sales (retail sales categories) represents sales at stores that sell merchandise normally sold in department stores.  

The Federal Reserve Board ("Fed") is responsible for the formulation of U.S. policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

The repo market refers to the market for short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day. 

Forecasts are inherently limited and should not be relied upon as indicators of actual or future performance.

Important Information

All investments involve risk, including possible loss of principal.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. 

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Important information:

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).

This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc.  Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.

This material is only for distribution in those countries and to those recipients listed.

All investors and eligible counterparties in Europe, the UK, Switzerland:

In Europe (excluding UK & Switzerland) this financial promotion is issued by Legg Mason Investments (Ireland) Limited, registered office 6th Floor, Building Three, Number One Ballsbridge, 126 Pembroke Road, Ballsbridge, Dublin 4, D04 EP27, Ireland. Registered in Ireland, Company No. 271887. Authorised and regulated by the Central Bank of Ireland.

In the UK this financial promotion is issued by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London, EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorised and regulated by the UK Financial Conduct Authority.

In Switzerland, this financial promotion is issued by Legg Mason Investments (Switzerland) GmbH, authorised by the Swiss Financial Market Supervisory Authority FINMA.

Investors in Switzerland: The representative in Switzerland is FIRST INDEPENDENT FUND SERVICES LTD., Klausstrasse 33, 8008 Zurich, Switzerland and the paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1, 8024 Zurich, Switzerland. Copies of the Articles of Association, the Prospectus, the Key Investor Information Documents and the annual and semi-annual reports of the Company may be obtained free of charge from the representative in Switzerland.

All Investors in Hong Kong and Singapore:

This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.

This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.

All Investors in the People’s Republic of China ("PRC"):

This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC.  The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC’s commercial bank in accordance with the regulation of China Banking Regulatory Commission.  Investors should read the offering document prior to any subscription.  Please seek advice from PRC’s commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only.  Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.

This material has not been reviewed by any regulatory authority in the PRC.

Distributors and existing investors in Korea and Distributors in Taiwan:

This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.

This material has not been reviewed by any regulatory authority in Korea or Taiwan.

All Investors in the Americas:

This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.

All Investors in Australia:

This material is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827) (“Legg Mason”). The contents are proprietary and confidential and intended solely for the use of Legg Mason and the clients or prospective clients to whom it has been delivered. It is not to be reproduced or distributed to any other person except to the client’s professional advisers.