Multi-family and industrial properties are recovering from the COVID-19 crisis and the rise in confidential agreements proves it, according to a new report from real estate company CBRE.
The confidentiality agreements signed at the end of July only decreased by 17% compared to July 2019, according to CBRE. The July numbers represented a significant improvement over the dismal 74% decline in confidentiality agreements signed in April and May.
In particular, the confidentiality agreements signed in the second quarter for industrial and apartment buildings reached 46% and 42% of the average Q2 levels over the past two years. Industrial and multi-family advancement exceeded confidentiality agreements for retail properties (37%), hotels (35%) and office properties (32%).
CBRE argued that the increased confidentiality agreements could herald a recovering commercial real estate sector. However, CBRE has identified coronavirus health concerns, and the adoption of remote working arrangements has weakened rental prospects for some office properties.
Still, corporate office properties such as life science facilities, data centers, and single-tenant buildings have proven popular during COVID-19 as e-commerce, especially online grocery shopping, and supply chain expansion grow. This resilience and growing popularity provides income stability for investors, wrote CBRE.
As some commercial property transactions are gradually beginning to recover, many property investors are requesting and receiving price cuts. According to CBRE, property values are expected to decline 10% to 20% by the end of the year, which will lead to a moderate increase in cap rates. However, the July sales also show that the cap rates of class A industrial and multi-family assets were more stable in the second quarter compared to other assets.
According to CBRE's property sales tracking, the retail sector cap rate for Q2 2020 was 5% versus 4.5% in Q2 2019, but the office sector class a cap rate increased only marginally in Q2 2020 compared to the 4th quarter of 2019 (4.2)%.
To fully return to pre-COVID cap rates within three years, the recovery is likely to be led by value-add investors with significant capital and investors looking for an alternative to low-yielding bonds, CBRE wrote .