By: RICHARD BARKHA M, Global Chief Economist & Global Head of Research at CBRE
The overall outlook for global real estate is positive as we move into the second half of 2021. COVID-19 remains a risk, especially from virus variants, but the vaccine program in the developed world has turned the tide. The big economies are re-opening and a fast-paced recovery is well underway.
There is much reason for optimism as we move into the second half of 2021. COVID-19 remains a risk, especially from virus variants, but the vaccine program in the developed world has turned the tide. The big economies are reopening and a fast-paced recovery is well underway. This will extend through 2022 as vaccination programs accelerate worldwide before “normal” economic growth resumes in 2023. Interest rates will rise slowly over that period, but we do not expect an extended period of high inflation.
Real estate capital markets will continue to bounce back in 2021 but will not reach the levels of activity seen in 2019 due to uncertainty in the office market. Real estate pricing remains firm. We see continued cap rate compression in industrial and multifamily, balanced by slight cap rate expansion for retail and Class B and C office assets. Debt markets will remain fully supportive
of real estate investment over the next 12 months, even if the Federal Reserve starts to scale back its purchases of mortgage-backed securities.
The ongoing return to the office, and to cities more generally, will accelerate in H2 2021 and should reach a level of normalcy in H1 2022. Most office occupiers expect to slightly reduce their overall space requirements, with much greater reliance on flexible and short-term space. New office construction starts have fallen sharply, which could lead to a shortage of prime space in 2023 or 2024, if not sooner. Life sciences is the most vibrant office-using sector, with new hubs emerging over the next 18 months.
Physical retail will surprise on the upside in H2 2021, particularly during the holiday shopping season, as more stores reopen. The sector continues to react to the gains made by e-commerce by improving service levels (i.e., curbside pick-up, ship-from-store, etc.) and overall customer experience. Suburban retail, particularly grocery-anchored assets, will drive absorption and rent
growth. Pricing levels have not yet stabilized, but most of necessary prime yield adjustment has already taken place. Retail assets are beginning to look compelling in a super-low-yield environment, particularly in light of the strong demand for industrial & logistics properties from occupiers and investors.
Multifamily assets may see some cash flow challenges as government economic support wanes, but a robust job market will minimize this impact. Urban multifamily, which has been most disrupted by the pandemic, offers the most opportunity for renters and investors. The sector will continue to expand in Europe and Asia-Pacific.
Hotels are recovering quickly, driven by increased leisure travel. Business travel won’t pick up until 2022. Labor is a major headwind for the sector, in part due to non-COVID changes in migration policies, which will lead to increasing levels of automation.
The overall outlook for global real estate is positive. Rents and values are well-supported, and the asset class is expanding.
See full 37-page report at Global Midyear Real Estate Market.