CRE Executives Becoming Bearish

Commercial real estate executives are growing “bearish” about the U.S. CRE market, DLA Piper’s Global Real Estate State of the Market Survey reported.

Largely due to the uncertainty created by the COVID-19 pandemic, a majority of CRE executives–59 percent–said they anticipate a bearish market for at least the next 12 months. In the same survey a year ago, most executives called themselves moderately bullish and confident the economy would continue to grow in the next 12 months.

The bearish outlook comes from concern about the pandemic, with 41 percent of those surveyed indicating they believe another wave of the virus will impact economic growth.

Despite the uncertainty, the survey found some optimism. More than half of the respondents said they anticipate a return to pre-COVID-19 economic growth within 18 months to two years.

“Our assumption that COVID-19 had, and will continue to have, an impact on CRE was confirmed,” said John Sullivan, U.S. Chair and Global Co-Chair of DLA Piper’s Real Estate practice. “[But] even with the shift away from bullish enthusiasm, we were pleasantly surprised to see some optimism for the future.”

Sullivan noted 68 percent of the respondents said they consider logistics and warehousing an attractive sector for growth, followed closely by life science and biotech at 58 percent. Eighty-seven percent of respondents said they believe e-commerce will remain a driver for the industry, up three percentage points from last year.

The survey also found a shift in the U.S. cities respondents cited as best for investment. Last year respondents deemed larger metropolitan areas including Chicago, Los Angeles, New York City and San Francisco most attractive for real estate investors. This year, smaller cities emerged as the top cities for investment over the next 12 months: Austin, Texas ranked first at 49 percent, followed closely by Nashville, Tenn., at 43 percent, Denver at 40 percent, Charlotte, N.C., at 37 percent and Raleigh-Durham, N.C., at 32 percent.

Larger cities saw a significant drop in attractiveness by comparison, with Los Angeles at 12 percent, San Francisco at 9 percent, Chicago at 6 percent and Philadelphia at 1 percent.

“One of the interesting trends we’ve seen emerge from COVID-19 is that some investors are moving away from larger metropolitan areas,” Sullivan said. “This year’s survey indicates that smaller cities with affordable suburbs are more attractive to many investors, companies and people. There has always been demand in these cities, but COVID-19 has likely accelerated that trend and may drive a new wave of investment.”