Confidence Increasing In Global Real Estate Despite Inflation, Pandemic Fears

There’s increased confidence in global real estate, 179 commercial real estate professionals internationally told the Duff & Phelps Real Estate Advisory Group (REAG) in a recent survey.

“More than three quarters say they are either slightly (45%) or much more optimistic (31%) about the future of the real estate sector compared with the onset of the pandemic in March 2020,” the Duff & Phelps poll reported.

For signs of increased confidence, the survey pointed to 14% of professionals seeing a global recession as the biggest risk, down from almost two thirds (64%) worried about the prospect in 2020 and fewer than one in ten (8%) still feel the pandemic is the biggest risk facing real estate in their region, down from a quarter last year.

However, while concern over Covid has eased it is still there.

There is still a fear the pandemic will drop valuations with four out of 10 respondents (39%) expected valuations to drop 5-10%, and almost a third (31%) feared an even heavier impact, Duff & Phelps cautioned.

Looking at the decline in office occupancy which happened during the pandemic, Six in ten (61%) of those surveyed currently expect occupancy to fall by up to 10% over the next year as a result of the rise in remote and home working, and a quarter (25%) expect it to fall by more than this.

Only 14% of the respondents said they anticipate occupancy to return to pre-Covid levels in 2022.

Return to pre-pandemic transaction levels is still months away, the investments managers, real estate operators, lenders and others surveyed believe.

Over a quarter (26%) think it will only be in 2023 until transactions are back to where they were before Covid-19 hit while (39%) seeing the return next summer and (16%) next winter.

Rising prices are now seen as the key risk to the commercial real estate market, said Duff & Phelps, noting inflation hit 6.2% in the US in October and 4.2% (a ten-year high) in the UK.

On the other hand, inflation could have some positive impacts on commercial real estate, Todd Henderson, co-global head of real estate for DWS, told GlobeSt.com in an earlier interview. “With inflationary pressures, you get an increase in costs to build real estate.” That reduces supply and helps support prices. Inflation also tends to bring higher wages. “That’s creating more buying power and it typically corresponds with higher GDP growth and real estate has historically displayed a correlation with inflation.”

At the same time, though, the risks are clear, another expert said.

“I worry about what would happen if we were faced with an increasing interest rate environment and not having these costs in check,” according to Gary Holloway Jr. , president at GMH Communities. “Just because we have a lot of apartments doesn’t mean we have access to furniture. We need to get people back to work and we need to get goods produced [for availability and lower prices.”