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Forecasting CRE in 2019 with Steven Weinstock

Forecasting CRE in 2019 with Steven Weinstock,ph1

What will this year hold for commercial real estate? Steven Weinstock, first vice president and regional manager with the Chicago Oak Brook office of Marcus & Millichap, said that he expects the year to be a strong one for the multifamily and self-storage markets.

He predicted, too, that the retail sector, though facing challenges, will continue to evolve and adapt to changing consumer shopping habits.

Weinstock is just one of the many industry leaders speaking at the 17th annual Commercial Real Estate Forecast Conference being held at the Hyatt Regency Chicago Jan. 8. He’ll join his peers in sharing his thoughts about how the CRE market will perform in 2019.

Like many commercial pros, Weinstock says that the multifamily sector, which has been performing so well for so long, will eventually hit a slowdown. That’s inevitable. But Weinstock said that he doesn’t expect this sector to hit that slowdown in 2019. He points to his home market of Chicago. Here, the apartment stock that has come online in the last 18 to 20 months has been steadily absorbed, without building owners having to lower their rental rates.

“Our city is benefitting greatly from new businesses and company headquarters,” Weinstock said. “We’ve seen the expansion here of companies such as Google and Salesforce. The need for housing in the city for all the new workers that are coming here remains strong.”

The suburban apartment market is steady, too, Weinstock said. New apartment units here don’t get absorbed quite as quickly as they do in the heart of Chicago, he said. But they are still being rented at a steady pace.

“The consensus among the brokers in our office is that by the end of 2019, anything new built in the suburbs will be filled, too,” Weinstock said.

And in 2019? Weinstock said that the multifamily market can’t sustain its current pace forever. But Chicago remains a great story for investors, he said.

Weinstock points to a Marcus & Millichap client who owned an apartment complex in Seattle. This client wanted to sell the complex, but instead of simply taking the money out of it wanted to leverage it to make even more money. The owner connected with a Marcus & Millichap agent in Chicago, seeking a low cap rate with a property in a solid neighborhood that promised a strong return with potential for growth.

“The client said that this was getting increasingly difficult to find in Seattle,” Weinstock said. “So the client came looking in Chicago.”

And the result? That client did find an apartment complex in the city in which to invest.

“He found that he could get much better returns in the third largest city in America,” Weinstock said.

The self-storage sector is expected to remain strong in 2019, too, Weinstock said. He said that there is plenty of money available for self-storage deals, and he expects a significant amount of new deliveries in this sector this year.

The best news? These new deliveries won’t result in many empty storage units.

“There will be a lot of new deliveries, but these units are being absorbed,” Weinstock said. “We expect that we’ll continue to see the natural progression of new sites coming online and being absorbed at a steady pace in 2019.”

Weinstock said that he doesn’t expect new self-storage deliveries to taper off until 2020. Why has this sector been so strong for so long? Weinstock pointed to the Great Recession. Up until this economic slowdown, homeownership had been consistently touted as something everyone should and could engage in. And, as Weinstock says, when you own a home you end up with places to store your stuff.

The recession of 2008 upended that. More people chose to rent instead of own. Many saw their parents struggling to make their mortgage payments and passed on buying a home. And when people rent? They tend to have less space for storage. That led to an increase in the number of U.S. residents renting out storage units, Weinstock said.

At the same time, a growing number of people from the ages of 20 to 34 continue to live with their parents, Weinstock said. A house only has so much room. As more young adults live at home, they need somewhere to put all their stuff, and self-storage units are a good option.

And the retail sector? Weinstock said that this sector will continue to face challenges in 2019, as it did last year. But in good news, Weinstock said that retail decisionmakers have learned some important lessons from their struggles and are now making better decisions.

“The word in 2018 was ‘cautious,’” Weinstock said. “Retailers thought hard about what they were doing and why they were doing it. Are we thinking this through? People are being more diligent and thoughtful of what they are doing and whether they should be doing it.”

People will still shop at brick-and-mortar retailers in 2019, Weinstock said. But retailers will have to adapt to attract these shoppers. It’s common knowledge now that retailers that offer experiences—everything from onsite cooking classes and yoga to adult-oriented arcades and bowling alleys—will remain strong.

“People were worried that everything will go online and people won’t go to stores anymore,” Weinstock said. “That didn’t happen. Online still represents a minority of retail transactions.”

Click here to register for the 17th annual Real Estate Forecast Conference to be held Jan. 8 at the Hyatt Regency Hotel in Chicago.