Real Talk about Real Estate: Quarterly CRE Outlook Q1 2021

Published: January 13, 2021

The economic and social conditions in 2020 wreaked havoc on the traditional commercial real estate (CRE) winners and losers, with industrial, logistics, cold storage, and warehousing thriving while offices, tourism, and retail fell somewhat from their traditional podium spots.

Despite this, various analysts have expressed hope for GDP recovery in 2021, as well as specific recovery in various sectors including CRE – leaving everyone wondering who the winners will be in the post-pandemic CRE world.

Quarterly view

Recovery is expected, but analysts seem more willing to bet on blue skies later in the year – specifically Q2 and Q3, and they are considerably more muted about the first quarter. For now, the second wave of the Covid-19 pandemic is keeping markets subdued and putting strain on businesses large and small.

Kathy Bostjancic, chief U.S. financial economist for Oxford Economics, told that the recovery will look more like a wide V or “tilted checkmark”.

Deloitte’s economic forecasters report that it is expected that “a vaccine and/or treatment will allow normal economic activity to begin to resume in mid-2021” but they also speak about the contrast between different property types (more below) and their short-term and long-term outlooks. According to Deloitte, “industrial real estate, health care, data centers, and cell towers have been positively disrupted”.

Furthermore, they caution that “CRE company leaders have their work cut out. To position their companies to thrive long term, they need to break inertia to move into rapid recovery.” And they single out digital transformation as key to operational resilience and strong financials.

Hotel and retail CRE’s recovery is expected to lag somewhat behind the general economic improvement, while growth of ecommerce brands should lead the CRE recovery charge in Q1. Hotel occupancy is not expected to bounce back to pre-pandemic rates until 2022 and beyond.

Further down the road

In broadest strokes, analysts are sounding optimistic for the year ahead with vaccinations underway and a return to political stability expected after the presidential transition – which is expected to sit well with investors. Millionacres predicts that government stimulus “will play a big part in all this, too, as the survival of small businesses – and many not-so-small ones – increasingly appears to depend on whether they can get bailouts to carry them through to a recovery of their own.”

In a panel discussion with various commentators, flag industrial, warehousing and distribution as continuing to be a boom space, and on the residential side, argue that low mortgage rates have been bolstering the prospects of residential development – specifically for apartments and single-family homes.

All the major markets, they say, have shortages – with housing inventory hitting record lows in 2020 –  which is creating demand and increased prices. You can listen to the full panel discussion here.