Asset Manager Predicts CRE Returns Will Top 20% This Year

The year 2021 should be a bright one for commercial real estate, according to asset manager DWS Group. A combination of strong economic growth, low real yields on bonds, and rising inflation “are key ingredients for robust real estate performance,” a statement from the company said. Returns should be greater than 20%, according to the firm’s forecast.

“It was a very short-lived real estate recession [during the pandemic], for sure,” DWS Group’s head of Americas real estate Todd Henderson tells GlobeSt.com. “The down cycle was much shorter than we’ve experienced in past recessions.”

Also notable was divergence of the performance among property sectors. It was the “the most significant we’ve ever seen in,” Henderson says, pointing to industrial as the “clear winner” and retail as the “laggard.”

Industrial “never experienced a setback in terms of the Covid pandemic recession,” Henderson notes. “That was primarily the dramatic shift in the supply chains to support e-commerce.” Pre-pandemic, e-commerce had been running between 11% and 13% of retail sales, peaking at the mid-20s and then falling back a bit. “But it’s still almost double where it was before. That translates into industrial demand, and a significant amount of industrial demand.”

Also pushing industrial was a move to onshore manufacturing, Henderson thinks, given the disruptions in global supply chains and limited domestic inventory. “We believe that demand is going to continue for the next several years,” he says.

Rental housing was a “close second” and the continuing result of a pre-pandemic trend accelerated by circumstances in 2020. “We are seeing material rent growth and elimination of concessions in suburban multifamily and seeing increased demand in urban multifamily,” he says. “We like the single-family rental sector a lot.”

Necessity retail, such as grocery stores, pharmacies, and other necessity-based tenants, did well and “is not a bad place to do some opportunistic buying,” according to Henderson.

While offices will see more activity with people returning to traditional work environments, it is still hard to predict what the results will be as many employees want to continue working at home.

But overall, “We’ve got a low-rate environment and a growing economy,” Henderson says. “Those factors are generally good for real estate. It provides yield, total return, and a hedge against inflation. I think that’s why people are interested in the sector today.”