I think it ’ s possible , as things improve and forbearance agreements come to a close , we may see more available assets in hospitality .”
While travel and leisure assets are required to react quickly to changing demand , the office sector is afforded a longer timeline in experiencing the overall impact of COVID-19 .
But inflation , while troublesome for the national economy , may not be as worrisome to CRE professionals .
“ As it relates to real estate , historically , inflation has not been a huge detriment to hard asset prices ,” Cypert says . “ Inflation will not have a big impact , unless it reaches too high a point or leads to stagflation . I don ’ t
Inflation , COVID-19 variants , and job vacancies could be problematic in 2H2021 and 2022 . But private equity experts expect the good times to roll in the near future .
Photos by Benedek ( left ) and Buzbuzzer
“ On the investor side of things , the general feeling is that we won ’ t be back to 100 percent of office occupancy from before the pandemic ,” Cypert says . “ However , that ’ s been offset with growth in the overall economy . And with those who are coming back to the office , you ’ re seeing a demand for more space per employee , which is a change after years of decreasing square feet per person .”
It ’ s also important to remember how quickly perspectives can change in a situation as volatile as a global pandemic .
“ If you look back to last August , CEOs of large corporate occupiers were planning to significantly shrink their portfolios ,” Herrenkohl says . “ That sentiment has subsided significantly , with in-person work becoming viable again and businesses resuming ‘ normal ’ activity .”
While the industrial sector has emerged as the indisputable star in the wake of COVID-19 , retail is a sector that continues to see widely varied results . Grocers , home improvement stores , and other essential businesses saw strong and steady demand throughout the pandemic , while restaurants , boutique retail , and suburban mall spaces experienced unprecedented challenges .
“ Over the last 12 to 16 months , we ’ ve seen two different tracks in retail ,” Herrenkohl says . “ Looking at Class B or C malls , they were on a downturn before the pandemic , so it just accelerated what was already happening . But it will be interesting to see how retail bounces back . Will these malls or parts of malls be turned into distribution centers ? Repurposing these spaces could be an appealing investment opportunity to those looking for a bargain .”
COMEBACK TIME There are plenty of reasons to be optimistic , but if 2020 taught us anything , it ’ s that the future isn ’ t guaranteed . Experts note potential difficulties that could hamper a robust recovery for CRE — including CCIM Institute Chief Economist K . C . Conway , CCIM , MAI , CRE , as noted in his midyear market update ( pg . 32 ). Inflation , COVID-19 variants , and job vacancies could be problematic in 2H2021 and 2022 . But private equity experts expect the good times to roll in the near future .
“ We are all aware of lumber prices , energy prices , and food prices ,” Herrenkohl says . “ One common view is that this is a onetime correction , but if it continues , that will obviously impact long-term outlooks .” think private equity investors are too worried about its impact , though .”
While institutional investors represent some of the largest players in commercial real estate , the pandemic reminded everyone that national trends all rely on local markets . Capital can readily flow from major urban areas to suburban or secondary markets .
“ Speaking in terms of the big picture , things look favorable ,” Cypert says . “ I expect private equity to continue to have a good run on commercial real estate for the foreseeable future .
“ But it ’ s important to remember this is all a function of local markets . You make money at the local level — understanding your specific properties and how they ’ re positioned to perform relative to competitors . That has not change nor will it ever change . That ’ s the most important aspect of commercial real estate .”
Nicholas Leider
Senior content editor for Commercial Investment Real Estate Contact him at nleider @ ccim . com .
CIREMAGAZINE . COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 31