NEW YORK, May 5, 2021 /PRNewswire/ -- Commercial real estate (CRE) experts' outlook on the CRE market has returned to optimism, according to DLA Piper's 2021 Global Real Estate Annual State of the Market Survey. Conducted in February and March 2021, the Survey analyzes the views of CRE experts and leaders on economic recovery, attractive investment markets and general market outlooks.
The 2021 Survey reflects a positive shift in mindset since the 2020 Survey, when most respondents were bearish due to uncertainty created by the COVID-19 pandemic. The majority of respondents, 74 percent, anticipate a bullish market in the next 12 months, up from 21 percent in the 2020 Survey and on par with pre-pandemic optimism indicated in DLA Piper's 2019 Survey. This year's positive outlook is largely attributed to the rollout of COVID-19 vaccines and an abundance of capital in the market, and roughly half of respondents say they believe US GDP will return to pre-pandemic levels within 18 months, an increase of 19 percentage points from the 2020 Survey. This optimism may be understated, as the Commerce Department recently reported that GDP is now within 1 percent of its pre-pandemic peak.
"We are excited to see the resiliency of the CRE market, and a return to optimism, which we believe is a sign that the market is poised for a strong rebound," says John Sullivan, US Chair and Global Co-Chair of DLA Piper's Real Estate practice. "Solid fundamentals, low interest rates and ample debt and equity capital lead us to anticipate a strengthening of most segments of the CRE market over the next year."
Favored asset types and cities
For several surveys in a row, two sectors have stood out as offering the most attractive risk-adjusted opportunities in the US: logistics and warehousing and life science/biotech. This year, 61 percent of respondents identified logistics and warehousing as the most attractive asset types for investment in the next 12 months, and 57 percent identified life science/biotech related real estate. When asked which factor will be the most impactful to the CRE industry, 86 percent of Survey respondents choose e-commerce for the second time in a row.
"Although the growth in e-commerce was increasing demand for logistics and data center properties before the pandemic, the pandemic supercharged the demand for on-line goods and made those property types even more attractive to investors," says Sullivan.
With respect to the interest in life science/biotech related real estate reflected in this year's Survey, Sullivan notes "Advances in science and big data were fueling interest in life science/biotech real before the pandemic, but the pandemic has shined a bright light on the potential growth of these types of assets."
This year's Survey also finds that recovery is on the horizon for multifamily, affordable housing and hotels/lodging, as 49 percent, 32 percent and 22 percent of respondents, respectively, see these asset classes as attractive for investors. With loosening travel restrictions, 22 percent of respondents believe hospitality is an attractive asset class for investment, a 16-percentage point increase from the 2020 Survey that also surpasses pre-pandemic optimism for hospitality.
As in the 2020 Survey, the 2021 Survey indicates the appeal of Sun Belt and Mountain West cities, with Austin, at 53 percent, and Nashville, at 46 percent, remaining as the top two US cities for investment over the course of the next 12 months. While respondents show less interest in investments in larger cities, some highly populated areas such as Miami and Phoenix, two hotspots for growth during the pandemic, saw a significant increase in attractiveness from the 2020 Survey.
The return to work and future of office space
Remote work will continue to impact the CRE market, specifically with regard to office space. Fifty-eight percent of Survey respondents believe there will be an increase in the number of office workers who spend less than 50 percent of their working time in office buildings. A majority of respondents, 84 percent, anticipate it will take at least two years for US office building vacancy to bounce back to pre-pandemic levels and nearly half, 46 percent, say it will take more than three years.
Despite uncertainty concerning the future of office space in the US, there is confidence that workers will return — and faster than many may have expected. Sixty percent of respondents anticipate roughly three in four office workers will be back in their offices full-time in 12 months. Furthermore, 66 percent say healthy workplaces will be an impactful element of the return to work.
Sullivan says, "Although a hybrid work-from-home model might cause fewer workers to be in physical offices full-time, there is confidence that, due to COVID-19 vaccine efficacy and increased efforts to maintain wellness within buildings and office spaces, a substantial return to the office will happen sooner than many previously expected."
The 2021 Survey coincides with DLA Piper's 16th Global Real Estate Summit, held virtually on May 5, 2021 and attended by many of the executives who responded to the Survey. In line with DLA Piper's commitment to serving food banks to help fight local, national and global hunger, DLA Piper will donate $1,000 in honor of each Summit speaker, resulting in donations of $5,000 to New York's City Harvest, $1,000 to Washington, DC's Capital Area Food Bank and $1,000 to Moisson Montréal.
A link to the full report is here.
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SOURCE DLA Piper