As the nation continues to reckon with COVID-19 and its impact on every sector of the economy, 2021 may be remembered as a decisive year for the commercial real estate (CRE) industry. Executives are navigating the economic fallout from the 2020 recession while adapting to new market trends. Among many key topics covered in Seyfarth’s 6th annual Real Estate Market Sentiment Survey, CRE executives weigh in on their top concerns and market trends, including the new occupant in the White House, and how the work-from-home landscape will change the market moving forward.
Seyfarth’s 2021 Survey examines the industry’s current market sentiment as it grapples with a pandemic and a change in political power:
Relaxed Reserve: The majority of survey respondents believe the Federal Reserve will not raise or decrease interest rates in 2021. As the world continues to battle the pandemic and climb out of a recession, there may be broad consensus in the industry that rates can’t go any lower and the chances of meaningful near-term inflation are slim. CRE executives could also be expressing general optimism for 2021 and confidence in the new Treasury Secretary Janet Yellen, a former chair of the Federal Reserve.
Pandemic Pulse: Understandably, the greatest concerns for the CRE industry this year revolve around the COVID-19 pandemic. The closing of public accommodations, the extension of tenant and borrower protections, and the economic fallout from the US recession rank the highest in the minds of real estate executives. As the pandemic creates new challenges for the industry, traditional fundamental fears have taken a backseat this year.
Bullish on Biden?: While most respondents believe the new Biden administration will not have a positive impact on the real estate industry (54 percent), 46 percent of executives think the 46th President will have a positive impact. Historically, survey respondents have indicated that Republican economic priorities are more favorable for the market.
Tax Talk: If there is to be federal tax reform in 2021, most respondents believe it will have minimal to no impact on the industry. A 50/50 split in the United States Senate could have dampened any chance of significant reform. Also, given the current legislative priorities of the new administration, a tax bill may not reach Congress until the 3rd quarter with a low probability of retroactivity for any adopted legislation.
Return to Resorts: The national vaccine roll-out and universal COVID fatigue has many craving a vacation in 2021. As a result, most survey respondents believe resort hotels and the hospitality industry will be the first sector to rebound from the pandemic. In a close second, respondents rank the urban multifamily sector, which has retained strong demand from the younger workforce. On the other hand, market trends reflecting the e-commerce boom does not bode well for enclosed malls.
Optimistic for Opportunity: Following a year of tremendous hardships, the CRE industry is overwhelmingly optimistic about market trends and their own operations moving forward in 2021. 85 percent of respondents see 2021 as a year of opportunity for their companies. While this may just be a reflection of self-confidence, low interest rates and governmental stimulus provide a positive forecast for entrepreneurs in a fragile market. The fortunes of CRE traditionally ride with its fundamentals, and a key fundamental is interest rates. As rates stay low, optimism stays high.
Seyfarth’s Real Estate department, recognized as one of the largest real estate practices in the US, surveyed commercial real estate executives in January. View a full copy of the 2021 Seyfarth Real Estate Market Sentiment Survey here.