With coronavirus vaccines FDA approved and being distributed across the U.S., we’re on our way to protecting our health and restoring our economy.
That was one of the key takeaways from “Trends in Property Management for 2021,” IREM’s recent virtual presentation by regular contributor John Salustri. But the vaccine isn’t the only driver behind a return to normalcy. The commercial and residential real estate market is set against the general economic picture, and the economy to a great extent is dependent on the regulatory and political environment.
After providing an overview of the economic and political framework, Salustri provided a sort of state of the industry review, listing the major food groups by “winners, in-betweeners, and losers,” as categorized by Cushman & Wakefield. In the first category, of course, were the industrial, data center, and life science sectors. The so-called In-Betweeners were office and multifamily. And, of course, retail brought up the rear as the single occupant in the Loser category. An in-depth look at each of these sectors followed.
Salustri, who was hosting his third annual Outlook presentation, confessed that last year’s predictions were off base. He described the outlook as “all flowers and unicorns,” given the state of the long-run economic upcycle. He noted that IREM members too were confident of a continuation of a vibrant real estate market, based on the economy.
“I interviewed Brad Ashley, CPM, for the Journal of Property Management,” he reported. “As managing director of Newmark Zimmer in Kansas City, MO, Brad oversees some 10 million square feet of local commercial property, including office, industrial, and retail. He said, ‘Our company had one of our best years ever in 2019, and 2020 looked to be much the same.’ ”
Ashley also said Kansas City as a whole was riding high, even as late as February, since the Kansas City Chiefs had just won its first Super Bowl in 50 years. That euphoria, along with any predictions of the ongoing health of the market, came crashing down with the advent of COVID-19.
Based on information from IREM Director of Government Affairs Ted Thurn, the presenter provided a run-down of likely changes to the coming tax structure under the incoming Biden administration. These touched on such hot-button issues for commercial real estate as changes to 1031 like-kind exchanges and other capital gains considerations. Salustri made it clear that the list of Biden campaign-platform issues was presented as “just the facts,” without personal bias, and that, since the new president has not yet been sworn in, nothing on the list could be carved in stone.
But a critical part of that presentation was indication that, no matter the party in office, red or blue, “real estate has performed well under both parties,” said Salustri. “Since 1979, the NCREIF* property index returns have averaged better than 8.5% annually under both Democratic and Republican administrations.”
In all, as we pivot to 2021, the road ahead seems filled with uncertainty. Real year-over-year GDP growth in the fourth quarter of 2021 is projected to be a meager 2.8 percent, he said, according to the congressional Budget Office. And Salustri indicated that CPMs he’s interviewed have put full recovery at anywhere from six to 18 months out.
But a constant theme of the presentation was that so much in the economy, in politics and in commercial real estate is in flux, but the availability of effective vaccines, as well as related changes to the economy could alter that overall picture . . . and alter it fast.
In a phrase, we leave 2020 and enter the new year with a wait-and-see approach to market conditions.
If you missed the live webinar, look for the on-demand version of this event in the IREM store, coming soon.
*National Council of Real Estate Investment Fiduciaries