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commercial real estate

Investor Sentiment Survey Results | 2021 Second Half

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New Investor Sentiment Survey Results for 2H 2021:

Strong Sentiment Points to Positive CRE Outlook

  • Investor sentiment remained stable at 165, in-line with pre-pandemic levels; above 140 from this time last year
  • About 74% of respondents say their properties are performing at or better than pre-COVID levels
  • Half of respondents plan to increase their CRE holdings as values are expect to rise for all property types

Economic Recovery Expected to Drive CRE Appreciation

  • Seniors Housing expected to see largest YOY gain at 7.5% due to a post-pandemic occupancy recovery
  • Industrial benefited from rise in eCommerce and “Just In Case” inventory; investors anticipate 7.4% price growth
  • Apartments, Self-storage, and Hotels also expect strong gains; driven by rent growth and economic recovery

Potential Headwinds Could Reshape CRE Landscape

  • Changes to tax law, rising interest rates and elimination of 1031 Exchanges remain top investor concerns
  • Despite elevated uncertainty, investor sentiment remains higher than 4 out of the last 5 years

As of 2H 2021
Base: All respondents; bases vary by property type currently invested in.
Sources: Marcus & Millichap Research Services, M&M/WMRE Investor Survey

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Is Rising Inflation a Concern for Real Estate Investors?

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Early signs of rising inflation are beginning to show up in the marketplace

  • Two main factors point to an increase in inflation over the short-term:
    • Government spending flooded the market with cash to offset the pandemic
    • Production pipelines thinned and supply chains can’t keep up

As a result, demand for goods/services is outpacing supply, driving prices up

  • Real estate is known as a strong hedge against inflation
    • Many lease terms include inflation escalation clauses that automatically lift rents
    • Leveraged returns are amplified in a rising inflation environment

Those looking to diversify their exposure to inflation risk, may find CRE as an attractive investment option

One Year Into COVID: The Light at the End of the Tunnel is Getting Brighter

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Numbers of March 10, 2021
Trailing 7-day average for daily Coronavirus cases

As we pass the one-year mark of the pandemic, the light at the end of the tunnel is getting brighter. The recently passed $1.9T stimulus combined with the ongoing vaccine rollout is boosting the 2021 outlook.

  • The hard-hit Hotel & Retail sectors will benefit as reduced restrictions encourage travel and shopping.
  • Apartment demand may strengthen as household formation re-invigorates amid rising job growth.
  • Strong momentum will likely continue for Industrial, though rising supply does pose some risk.
  • Vaccinated workers may accelerate the return to the Office, though the future of working remains unclear.

Economic Forecasts for 2021 Increasingly Optimistic

  • The recently passed third round of stimulus and the rising rate of vaccinations have bolstered the 2021 outlook
  • Economists are forecasting 2021 GDP growth from 5% up to 8.1%, which would be the highest growth since 1950
  • The pace of job recovery is expected to accelerate as vaccinations allow more states to loosen restrictions

Economic Recovery Will Bolster Hardest Hit Property Types

  • Vaccinations could encourage summer travel, raising Hotel occupancies and restoring some hospitality jobs
  • Reduced restrictions could help stabilize Retail, which had negative absorption of 26M sq. ft. last year

Stronger Outlook Provides New Tailwinds for CRE

  • Apartments could get a demand boost later in the year as job creation invigorates new household formation
  • Industrial is expected to maintain its strong momentum, but risk of elevated supply remains
  • While vaccinated workers can return to the Office; uncertainty remains on how quick that recovery will be

Sources: Marcus & Millichap Research Services, The New York Times, Bloomberg L.P.

Is 2021 Poised to Bring a Major Revival for Commercial Real Estate?

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Is 2021 Poised to Bring a Major Revival for Commercial Real Estate?

By Marcus & Millichap Research Services

  • Prospects for new stimulus and renewed virus containment efforts strengthen the 2021 economic outlook
  • Additional stimulus checks and extended/expanded unemployment benefits will support spending activity
  • Furthermore, if the vaccine rollout continues as expected, trillions in savings could be unleashed
  • Nearly all types of real estate stand to benefit as spending activity and job growth accelerate
  • Retail and Hospitality in particular could see a revival as consumers re-engage with the marketplace
  • Employment growth supports the Apartment and Office sectors and indirectly supports Industrial demand
  • As a result, the outlook for commercial real estate in 2021 and beyond is looking brighter

$900 Billion Stimulus Package to Support  Economy, Bolster Real Estate Outlook

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COVID-19 STIMULUS PACKAGE SPECIAL REPORT
1/15/2021 by Marcus & Millichap Research Services

After significant delay, Congress passed a stimulus bill that will serve to limit the threat of a double-dip recession after economic growth faltered in December. The bill includes additional support for the unemployed, rental assistance, and direct cash payments to individuals. Small businesses, cultural institutions, and other hard-hit industries will also receive help.

Key Features Include:

  • How the stimulus package will support commercial real estate revenues
  • Impact of legislation on economic growth prospects in 2021
  • Specific industries targeted by bill for additional support

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What’s Driving Interest Rates Higher?

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By Marcus & Millichap’s Research Services

Economic Outlook Placing Pressure on Interest Rates

  • The Georgia Senatorial run-off results reduced political uncertainty and raised the chance of additional stimulus
  • This has strengthened the 2021 economic outlook
  • As a result, the 10-Year Treasury is back up to 1.1% from 0.5% back in August, but still far from 1.8% a year ago

Rising Rates Already Impacting Commercial Real Estate

  • Apartment loans have seen rates rise 30-40 basis points over the last few weeks to the upper 2% to mid-3% range
  • Quality Office & Industrial rates run in the low 3% range; Retail Centers & Self-Storage can fall in mid-to-upper 3%
  • Hotels financing remains challenging, but available

Upward Momentum Likely to Continue

  • Advancements in the economic and health care fronts are signals that interest are likely to continue rising
  • Diminishing uncertainty is also taking more investors off the sidelines, increasing competition in the market
  • For inventors who plan to buy this year, locking in these favorable rates may prove beneficial in the long-ter
* Average cap rate through December 2020; 10-year treasury through January 13, 2021
Includes apartment, retail, office, and industrial sales $1 million and greater
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, Federal Reserve