2021 Poised to be a Seller's Market for CRE Assets

Any pricing reductions from the pandemic and economic dislocation will be short-lived. A new survey from CBRE finds that 70% of respondents plan to increase investment by at least 20% this year compared to 2020, but only 30% of investors on the sale-side made the same claim. This disconnect between buyers and sellers will likely drive buying competition and pricing, creating a seller’s market.

Most investors are anticipating an active year acquisitions year. While 70% plan to increase acquisition activity this year, another 23% plan to maintain acquisitions activity. Overall, only 7% of investors are reducing buying capacity or exiting the market altogether.

More investors in the Americas are planning to increase investment activity this year than in other regions. In the EMEA region, nearly 60% of buyers plan to increase purchasing this year and about 30% plan to maintain buying activity. In the APAC region, about 40% of investors plan to increase investment by 20%, while roughly 50% plan to maintain investment activity.

The CBRE report estimates that the low interest rate environment and economic recovery is driving buying demand in the Americas. However, property owners typically hold properties through economic dislocation and times of uncertainty, which is driving the gap between buyers and sellers. CBRE expects buyer demand will help to convince more owners to sell, ultimately estimating that investment volume will increase 25% year-over-year in 2021. This estimate, of course, is related to the waning of the pandemic and COVID-19 transmission rates.

The trend already began late last year. Investors ramped up buying in the fourth quarter, bringing a 60% decrease in investment volumes to only 34% or just shy of $300 billion. Although some markets had even more significant decrease in investment volumes. New York investment activity fell 50% in 2020, according to research from Cushman & Wakefield. This is the lowest investment activity on record since 2010, the pit of the previous recession. In 2021, CBRE estimates investment volumes will near $500 billion, a significant increase over 2020 but still a decrease from 2019 activity.

Overall, investors plan to target higher-risk assets with 29% of survey respondents saying that they plan to invest in either opportunistic or distressed investments. Most investors will buy value-add and core deals, with 59% of respondents falling into these two categories. The report suggests that these responses show an increased appetite for risk this year, likely driven by economic stability, government stimulus and better availability of capital.

Globally, investment volumes rebounded at the close of 2020, up 84% from the previous quarter and totaling $290 billion, according to an earlier report from CBRE. The activity was a good sign for recovery of the industry and returning demand; however, it wasn’t enough to offset the market dislocation for the year. Global capital was down 26% at the close of 2020.