WASHINGTON, D.C.- (By Dale King, Realty News Report) — The Urban Land Institute’s latest Real Estate Economic Forecast predicts a general return to economic growth from 2021 to 2022 and less of a coronavirus-generated slump for the remainder of 2020 than was anticipated six months ago.
Survey results were released Oct. 28 during a ULI member-only webinar that also featured observations from a panel of four researchers and investors.
Overall, the report stated, and panelists generally agreed, that COVID-19hit the retail market hard– and that already-slumping segment didn’t need the downward push.
Industrial, single-family and multifamily property have been virtually unscathed by the global illness, said ULI forecasters, the underlying demand is strong,with or without a pandemic.
Richard Kleinman, managing director of research & strategy for LaSalle Investment Management, lamented the “uncertainty” of COVID’s future. “What was our view in May? Have we given up on the pace of growth for 2021? When we get a vaccine, I can give you a better forecast.”
CBRE’s Jeanette Rice: Optimistic about 2021
Jeanette Rice, Americas head of multifamily research at CBRE, noted that “we are a little more optimistic at CBRE. We believe in more recovery next year and less in 2022 because of the 2021 recovery. The hospitality industry will take more time to come back. There won’t be a full employment recovery until 2022.”
A future tainted by COVID “is hard to figure,” said Tim Wang, managing director and head of investment research at Clarion Partners, LLC. “There are unknowns that are out of our control. For example, suppose a vaccinedoesn’t work?”
He seemed to touch on a common theme when he predicted “a bifurcated recovery. There may be high-paying jobs that can be done remotely, so that is less of an impact [of coronavirus]. For lower-paying jobs, there’s a need for more government assistance.”
Panelists directed their comments at a ULI report based on a September-October survey of 43 economists and analysts at 37 real estate organizations.
The sentiment of that group indicated the economy would rebound in 2021, with an even more positive stance in 2022, though that bounce-back will vary by sector. The current recession is expected to be short-lived, analysts noted, and real estate market conditions and values are forecast to hold up much better than predicted six months earlier, with industrial real estate and single-family housing expected to perform best.
Rent growth expectation for the next three years is likely to stay either negative or middling, except for industrial which will continue its robust trend.
Waiting for a Recovery: Industrial Strength
Industrial rental growth will lead all property types with an average of 2.1% over 2020-2022, followed by multifamily at .03%, office at -0.5%, retail at -2.3% and hotel revenue per available room at -3.3% percent over a three-year period after an initial 35% drop in the first year.
This pretty much linked to Rice’s assessment. “Industrial property is doing best. Multifamily is second and retail is at the far end. Industrial has experienced 7% year-over-year growth which, given the recession, is incredible.”
“The multifamily market is pretty much on target. It has fared better because there is a lot of construction. Class A units, which are high-end rentals, will lag behind.” She said it was good that garden apartments were being built again. “Within a few miles of me, there are six complexes of the A-minus to B-plus type, new and nice.”
“Industrial is bucking the trend,” she added. For the retail sector, she foresees “two years of decline and back to baseline.”
“Industrial is clearly the belle of the ball,” said Kleinman, adding that the situation with retail businesses is “quite dire. There are a lot more vacant retail spaces.”
Waiting for a Recovery: Converting Malls to Warehouses
Conversion of malls to warehouses is one suggested salvation that’s been floated lately. But Wang noted: “There are 2,200 malls across the country, but no more than 40 to 50% are suitable for conversion.”
Adam Ruggerio, managing director and head of client solutions at MetLife Investment Management and the moderator, capped the discussion with a view of the office market. “Right now, we are all talking remotely,” he said, noting the virtual meeting venue. “When are we going to commute back to our offices?”
“Offices are still critical for collaboration and innovation” with other employees, Wang said. He even pointed out that space for workers in offices is getting larger to accommodate such camaraderie.
Kleinman again noted “a huge amount of uncertainly” about returning to office settings. “We may even work four days or less per week in the office. This is one less lunch or parking space to purchase.”
Without occasional trips to an office setting, he said, “we lose the value of collaboration with colleagues.”
“Before COVID, we were going into flex workspace – not just from home, but from anywhere,” Rice said. “We will probably see more of that. We need to collaborate, but not every day.”
Nov. 4, 2020 Realty News Report Copyright 2020
File: Waiting for a Recovery: ULI’s Highs and Lows
File: (2) ULI Real Estate Economic Forecast .. Urban Land Institute. Covid. Multifamily. Waiting for a Recovery:. 11-4-20