Today's political and economic environment is good for core real estate investors but not as good for those pursuing higher-return seeking strategies, such as opportunistic and value-add, according to a report by real estate manager LaSalle Investment Management.
"This slow growth, low interest rate, scary political ... environment, is a pretty good environment for core leased real estate," said Jacques Gordon, LaSalle's global strategist in an interview. "It's not as good for real estate investors stretching for higher returns. Value add and opportunistic folks will have to work very hard for double digit returns."
What's more, the slow, steady economic growth, low inflation and falling interest rates that allowed the real estate asset class to thrive in recent years will start to dissipate in 2020, according to LaSalle's Investment Strategy Annual 2020 report.
Expected headwinds that could damp real estate returns include slowing global economic growth, heightened domestic political and policy polarization, high property valuations and disruptive technology.
"Everything geared toward making the economy look good is not sustainable," Mr. Gordon said. "I question whether growing the deficit and keeping monetary policy so loose and job numbers so good is sustainable. Something is going to give at some point."
However, there will be tailwinds in coming years that will help to balance these factors out such as increasing real estate allocations and supply constrained by rising land values and higher construction costs.
Real estate managers and investors should not panic and say, "it's the end of the world," Mr. Gordon said.
"Be more selective," he said, "be more cautious in how you underwrite your ability to increase rents and lease buildings."
