CRE Professionals Disagree About Path Ahead

Commercial real estate professionals remain divided about the sector’s near future, two new reports find.

RICS Economics’ fourth quarter Global Commercial Property Monitor report said sentiment remains “largely downbeat overall,” mostly because of the continued sharp decline in office and retail demand.

“For capital values, participants across the U.S. still foresee relatively steep declines in the year to come,” RICS said. When examined separately, prime- and secondary-market industrial, multifamily and data center capital values are all expected to rise over the next 12 months, but retail sector capital value expectations point to further steep declines and the outlook for office values remains “deeply negative,” the report said.

RICS’ 12-month outlook for commercial property rents remained “comfortably negative.” The report forecast a 4.5 percent drop in rental income across property types in the year to come.

The Society of Industrial and Office Realtors found more optimism in its quarterly survey. “The results show a global commercial real estate industry simultaneously gaining ground with transactions, with sustained optimism about the future,” SIOR said.

The report said property sales transactions that closed on time improved across sectors during the fourth quarter, from 43 percent in third-quarter 2020 to 67 percent in late 2020.

Office specialists reported that more than half of their transactions closed on time compared to 38 percent in the previous quarter, though cancellations rose slightly. Industrial brokers saw the largest gains, with 74 percent reporting transactions closed on schedule, a sharp rise from the 51 percent seen in the prior quarter.

Virtually everyone SIOR surveyed said the pandemic is by far the biggest factor in how the industry will perform in the months ahead; most agreed that an improved vaccination rollout could significantly improve conditions in second-half 2021.