WASHINGTON, D.C. — (By Dale King, Realty News Report) — The Urban Land Institute’s latest Real Estate Economic Forecast anticipates a return to economic growth in 2021 and a smaller coronavirus-driven downturn for the remainder of 2020 than projected six months ago.
The survey findings were released Oct. 28 during a ULI members-only webinar, which included comments from a panel of four researchers and investors.
The report and panelists largely agreed that COVID-19 has hit the retail sector especially hard — exacerbating an already weakening market. In contrast, industrial, single-family, and multifamily property sectors have been comparatively resilient, with strong underlying demand regardless of the pandemic.
Richard Kleinman, managing director of research & strategy at LaSalle Investment Management, emphasized the uncertainty surrounding COVID’s trajectory. “What was our view in May? Have we adjusted expectations for growth in 2021? When we get an effective vaccine, I can provide a clearer forecast,” he said.
CBRE’s Jeanette Rice: Optimistic about 2021
Jeanette Rice, Americas head of multifamily research at CBRE, said CBRE is more optimistic. “We expect a stronger recovery in 2021 and a more moderate pace in 2022 because of the rebound next year. The hospitality sector will take longer to recover, and a full employment recovery likely won’t occur until 2022.”
Tim Wang, managing director and head of investment research at Clarion Partners, described the difficulty of planning under persistent uncertainty. “There are unknowns beyond our control. What happens if a vaccine proves ineffective?”
Wang predicted a bifurcated recovery: high-paying jobs that can be done remotely will be less affected, while lower-paying positions may require greater government support.
Panelists discussed a ULI report based on a September–October survey of 43 economists and analysts from 37 real estate organizations. Respondents generally expect the economy to rebound in 2021 and improve further in 2022, though recovery will differ across sectors. The recession is anticipated to be relatively short, and market conditions and property values are expected to fare better than forecasted six months earlier. Industrial real estate and single-family housing are projected to perform best.
Rent growth over the next three years is expected to be modest or negative for most property types, with industrial continuing its strong performance.
Waiting for a Recovery: Industrial Strength
Industrial rental growth is forecast to lead all property types, averaging 2.1% from 2020–2022. Multifamily is forecast at 0.03%, office at -0.5%, retail at -2.3%, and hotel revenue per available room at -3.3% over the same period after an initial estimated 35% decline in the first year.
Rice echoed the forecast: “Industrial property is doing best. Multifamily comes next, while retail is at the far end. Industrial has seen roughly 7% year-over-year growth, which is remarkable given the recession.”
She noted that the multifamily market is largely on track, helped by ongoing construction. Higher-end Class A units may lag, while mid-market garden apartments are seeing renewed development. “Within a few miles of me, there are six new complexes in the A-minus to B-plus range,” she said.
“Industrial is bucking the trend,” Rice added, predicting two years of decline for retail before returning to baseline. Kleinman described retail’s position as “quite dire,” with significantly more vacant retail space appearing.
Waiting for a Recovery: Converting Malls to Warehouses
One proposed remedy — converting malls into warehouses — faces limitations. Wang noted that of roughly 2,200 malls nationwide, only about 40–50% might be suitable for conversion.
Adam Ruggerio, managing director and head of client solutions at MetLife Investment Management, who moderated the discussion, turned to the office market: “Right now, we’re all meeting remotely. When will commuting back to offices resume?”
Wang emphasized that offices remain important for collaboration and innovation. He also observed that office space may evolve, with more room allocated to foster employee interaction.
Kleinman highlighted the uncertainty about returning to office routines. “We may work fewer days in the office — maybe four days or less per week — which reduces needs like daily lunches or parking.” He cautioned that without in-person interactions, companies risk losing the value of workplace collaboration.
Rice pointed out pre-pandemic trends toward flexible work arrangements: “Before COVID, we were moving toward flex workspaces — not just from home, but from anywhere. That trend will likely continue. We still need in-person collaboration, but not necessarily every day.”
Nov. 4, 2020 Realty News Report Copyright 2020
File: Waiting for a Recovery: ULI’s Highs and Lows
File: (2) ULI Real Estate Economic Forecast — Urban Land Institute. Topics: Covid, Multifamily, Waiting for a Recovery. 11-4-20