Bearish CRE Market Predicted for One other 12 Months

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Class B and C Apartments Will Be Next to Face Headwinds

When DLA Piper conducted the annual DLA Piper Market Status Survey 2019, most respondents were moderately optimistic and optimistic that growth would continue.

A year later, after the arrival of COVID-19, the picture has changed. The majority of respondents, 59%, expect the market to decline for at least the next 12 months. However, the majority of respondents, which include senior CRE executives, believe US GDP will return to pre-pandemic levels in 2022.

"I bet we would have had a different and more pessimistic answer between March and June, but I think we benefited from getting good information from the fact that we waited a few months," said John Sullivan, US chairman and Global Co.- Chairman of DLA Piper's Real Estate Practice told GlobeSt.com. "People had a small chance to see how this will play out and maybe start to put this incredibly unusual situation into perspective."

The majority of respondents, 76%, believed that COVID-19 vaccine development would be the single most important factor in global CRE recovery. This was followed by the global economic recovery with 49 percent, the 2020 US elections with 44 percent and the recovery of US GDP with 40 percent.

More than half [58%] of respondents said that abundance of available investment capital was the main reason for an optimistic economic outlook, up 15 percentage points from the 2019 survey.

Respondents believed that two sectors – warehouse and logistics and life sciences and biotechnology – offer the most attractive risk-adjusted opportunities in the US for real estate. For the second time in a row, respondents chose logistics and warehousing as the most attractive investment opportunity and rose from 58 percent in 2019 to 68 percent in 2020. Life science and biotech properties, which rose by 15 percentage points to 58 percent, were identified by respondents as the second most attractive investment opportunity.

On the other hand, student apartments with 44 percent, senior citizens apartments with 13 percent and urban / transit-oriented mixed-use developments with 10 percent showed the sharpest decline in interest since the 2019 survey.

While COVID continued to affect dense high-rise metros, major cities in Los Angeles, San Francisco, Chicago, and Philadelphia saw year-over-year decline in attractiveness. Instead, respondents rated Austin, Nashville, Denver, Charlotte and Raleigh-Durham as the most attractive cities to invest in.

Sullivan doesn't see a long-term move away from the big metros, however. "There is so much going on for these places [big cities] that I don't think they will be permanently out of favor," Sullivan told GlobeSt.com. "Perhaps there will be some fringe impact, but I don't think it's a long-term fundamental shift."

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