Survey Highlights the Start of a CRE Bull Market

The difference a year can make is going from 21% expectations of a bull CRE market in 2020 to 74% in 2021, according to DLA Piper’s latest State of the Market Survey.

“And most of those bulls are pointing to the continued rollout of the vaccines and opening of economies, as well as an ample amount of equity and debt capital,” John Sullivan, chair of DLA Piper’s real estate practice, tells GlobeSt.com. “For most asset classes, the fundamentals pre-pandemic were good. It wasn’t an asset bubble that burst. It was a black swan external event.”

Unlike 2008, where real estate was highly leveraged and, as a result, financially shaky in the face of trouble, “debt is plentiful and cheap and attributing to people’s bullish outlooks,” Sullivan adds. “And helpful for the markets.”

DLA Piper used LinkedIn and email lists of CRE experts, including “CEOs, COOs, CFOs, real estate developers, real estate debt providers, real estate investors, third-party brokerage, property and asset managers and other real estate professionals,” as the report noted. There were 173 respondents.

The top risk-adjusted opportunities for investors over the next 12 months are logistics and warehousing, according to 61% of respondents, and life science and biotech in the view of 57%. Multifamily, data centers, medical offices, cold storage, and non-logistical industrial all had a score of one-third or higher.

At the bottom of the ranking were parking lots and facilities, retail, student housing, offices, urban transit-oriented mixed-use, and hotels and lodging.

There’s a notable shift from primary markets to secondary and tertiary. Cities holding the greatest interest were Austin (53%), Nashville (46%), Raleigh-Durham (40%), Denver (32%), and Charlotte (32%).

Sullivan doesn’t see this as surprising, as cities like Austin were already gaining attention even before the pandemic. “I think it’s interesting that both Miami and Phoenix have moved up significantly over the prior year,” he says.

The most active equity investors this year are expected to be private equity (51%), domestic pension funds and endowments (19%), and foreign investors including sovereign wealth funds (11%). Bringing up the rear were family office (13%) public REITs (4%), and crowdfunding (1%).

“There is one other thing that might not jump out at people,” Sullivan says of the survey. “One of the questions is what are the things most likely to be impactful to commercial real estate in the next 12 months. I thought it was interesting that global stability, US trade wars, and immigration all went down.” There’s a clear perception that some previously hot button topics have dropped in importance.