5 Must-Reads for the CRE Industry [January 2021]

Posted by Alex Dimitroff on Jan 31, 2021 11:24:38 AM
Alex Dimitroff

1.  Vaccine to Trigger Q3 CRE Recovery: Report

“Most of the country’s industrial markets will be in a recovery or expansion mode this year, while only a handful of metros will see their office markets expand, according to Integra Realty Resources’ (“IRR”) Viewpoint 2021 publication. But until the reset of the economy—expected to occur at the midyear point—the firm remains cautiously optimistic about the overall state of commercial real estate.” (Commercial Property Executive, 1/11)

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What you need to know:

  • The pandemic forced industrial operators to focus more intently on inventory across the entire supply chain – including inventory in transit, last-mile accommodations, inventory covered by preorders, etc. The strong performance of industrial relative to other asset types during the pandemic and the expected economic growth in 2021, allowed for IRR to place 90% of industrial markets in either ‘recovery’ or ‘expansion’ growth cycles.
  • The advent of the coronavirus vaccine has allowed a path for a large-scale economic recovery and CRE rebound across most property types. After the pandemic subsides, it is still largely unclear what consumer habits will look like. For instance, will shoppers return to the stores or will the mass adoption of e-commerce remain the norm?

Read the full article here.

2.  $200B of Investment Capital Will Come Off of the Sidelines This Year

“This year, a significant amount of capital is set to hit the commercial real estate investment market. During the uncertainty of 2020, more than $200 billion has sat on the sidelines, waiting out the market uncertainty. Those investors are poised to return this year, driving investment activity.” (GlobeSt, 1/21)

What you need to know:

  • Mark Seale, principal and director of brokerage services at Avison Young stated, “Some properties are distressed and will provide higher cap rates of at least a percent which will attract value-add investors”. Investors are eyeing new target markets like Phoenix, which has a highly educated workforce and seen a surge in population growth from states like California and New York.
  • Seale also expects retail activity to rebound significantly throughout 2021. While some of the investment will have to do with declining values, some experts predict the 10-year treasury yield will double by mid-2021, causing investors to acquire assets sooner rather than later as the cost to borrow money will rise.

Read the full article here. 

3.  Nearly 20% of Renters in America are Behind on Their Payments

“About 18% renters in America, or around 10 million people, were behind in their rent payments as of the beginning of the month. It is far more than the approximately 7 million homeowners who lost their properties to foreclosure during the subprime mortgage crisis and the ensuing Great Recession. And that happened over a five-year period.” (CNBC, 1/25)

What you need to know:

  • Mark Zandi, chief economist at Moody’s Analytics, and Jim Parrott, a fellow at the Urban Institute, shows the typical delinquent renter now owes $5,600. This translates to nearly four months behind on their monthly payment. In total, an astonishing $57.3 billion is owed.
  • The $900 billion relief package passed in December provides $25 billion for both renters and landlords. Zandi and Parrott’s analysis, however, shows that even if dispersed expeditiously, the $25 billion would bring the numbers down until April 2021. By March about 6.3 million renters would be behind on payments, with total arrears of about $33 billion.

Read the full article here.

4.  Life Sciences Boom Continues with 36M SF in Works

“Demand for life sciences doesn’t seem to be letting up. As the need for wet lab space exceeds the limited supply, more than 36 million square feet of new construction is expected to hit the top 14 life sciences markets across the United States, according to a new report by Newmark.” (The Real Deal – subscription required, 1/26)

What you need to know:

  • Nearly $30 billion in healthcare venture capital was flooded into the market in 2020, a 36% increase from 2019. The major owners of life science properties have led the surge of life science product in U.S. Alexandria, the largest owner of the property type, with around 300 properties, closed on an estimated $3 billion in product in 2020.
  • Average monthly pricing for life sciences investment sales has more than tripled from May 2020, reaching $627 per square foot in December. As a percentage of total office product, life sciences investment accounted for 16.4% in 2020, more than double the amount from 2019.

Read the full article here. 

5.  Nonresidential Construction Likely to Remain in Recession This Year

“Commercial and multifamily construction starts in the top 20 US metro areas fell to $111.1 billion in 2020, a freefall of about 23% in value, according to Dodge Data & Analytics. More broadly, national starts in those sectors took a 20% tumble to $193.4 billion. The total consists of office buildings, stores, hotels, warehouses, commercial garages, and multifamily housing and does not include institutional building projects.” (GlobeSt, 1/27)

What you need to know:

  • Nonresidential construction is largely expected to remain in recession this year, after construction spending ended an epic run of expansion last spring.  Total construction starts fell 10% to $766.3 billion in 2020, and nonresidential starts posted the lowest level since 2015.
  • Experts predict that, although the construction sector will likely show signs of recovery in 2021, it will be a difficult long-term slog. Among the largest US metros, both New York City and Washington, D.C. saw a 25% decline year-over-year, followed by Los Angeles which fell 21%.

Read the full article here.


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Topics: Market Update, Investment

Alex Dimitroff
Written by Alex Dimitroff

As Financial Analyst, Alex supports RRA Capital's senior managers in property underwriting, loan closing, and fund administration. Alex is a CFA Level I candidate and a recent Finance graduate from Barrett, The Honors College at Arizona State University.