CBRE Sees Mixed Results in CRE Recovery
Commercial real estate under construction
CBRE, Los Angeles, said it anticipates the office, retail and hotel sectors will begin a slow recovery next year.
Meanwhile, industrial and logistics real estate will likely extend an early recovery already underway and multifamily should start its own swift rebound, it said in its 2021 U.S. Real Estate Market Outlook.
“Overall, we expect the real estate recovery, particularly the office sector, to lag the broader economic recovery by several quarters,” said CBRE Global Chief Economist and Head of Americas Research Richard Barkham. “This follows the pattern of previous cycles but with the added complication of getting people back into the workplace.”
Barkham noted two factors he called “essential for this recovery to take hold:” a medical resolution to COVID-19 through a vaccine and therapeutics and another fiscal stimulus package. The report said all real estate sectors should benefit from the widespread availability of a vaccine, a prospect enhanced by Pfizer’s announcement last week of a treatment that proved 90 percent effective in preliminary trials.
Turning to real estate capital markets, CBRE said it expects the improving economy plus “aggressive” quantitative easing by the Federal Reserve should hold values stable and in some cases put downward pressure on capitalization rates. “For now, there remains a wide gap between buyers seeking discounts and sellers not willing to offer them, but this gap will narrow over the course of the year,” the report said. “Investors have about $300 billion earmarked for real estate investment, much of it in North America.”
CBRE forecast the following for various sectors in 2021:
Industrial/Logistics
CBRE said it anticipates nearly 250 million square feet of industrial and logistics space will be absorbed next year, more than the previous five-year average of 211 million square feet annually. “Adaptive reuse of retail space for logistics uses will accelerate,” the forecast said.
Multifamily
Suburban multifamily should outpace urban properties in the recovery, the report said. CBRE forecast the multifamily sector will return to pre-pandemic occupancy next year with rents fully recovering by 2022. The firm projects apartment investment volume will rise 33 percent in 2021 to $148 billion–still well short of 2019’s $191 billion total.
Office
Office market fundamentals are expected to begin to recover in late 2021, CBRE said. “Suburban office markets will recover more quickly, while downtown markets will pick up later in the year as mass-transit commuting resumes,” the report said. “Whether suburban or urban, most companies will start to shift to a hybrid of in-office and remote work with the office as the primary base. In addition, more companies will use flex space as they shift to more agile office occupancy strategies.”
Hotels
Hotel group and business bookings will likely remain weak in 2021, meaning the overall hotel recovery will take several years, the report said. U.S. hotel occupancy should slowly return to pre-pandemic levels by 2023, CBRE said.
Retail
“E-commerce sales growth will slow in 2021, and may even fall back a little, in the wake of the pandemic-related surge of 2020,” the report said. “Sales from brick-and-mortar retail will recover as economies reopen amid the eventual widespread availability of a COVID-19 vaccine and may even surprise on the upside on the back of post-COVID relief and pent-up demand.” But even so, CBRE forecast a 20 percent reduction in total U.S. retail square footage by 2025 from the current 56 square feet per capita. “Innovative private capital will lead investment in retail real estate while institutional capital will continue to pull back,” CBRE said.
